Municipal Bankruptcy: When Doing Less is Doing Best

88 Amer. Bankr. L.J. 85 (2014)

42 Pages Posted: 11 Jun 2014  

C. Scott Pryor


Date Written: April 11, 2014


The bankruptcy process takes as a given the pre-bankruptcy allocation of economic risk. Yet, the Bankruptcy Code permits this risk to be reallocated through the adjustment process so long as that reallocation is "fair and equitable," does not "discriminate unfairly," and is in the "best interests" of creditors. The first two look to bankruptcy law for their definitions; the third derives from state law.

Chapter 9 of the Bankruptcy Code does not resolve any conflicts among these requirements. This uncertain state of affairs generates a powerful incentive among most parties to settle. So long as the court retains the power to dismiss the case and remit the conflicts to the vagaries of state adjudication, Chapter 9 functions to create an institutional game of Chicken driving stakeholders to consensus.

Keywords: bankrutpcy, Chapter 9, fair and equitable, best interests, discriminate unfairly, Stockton, executory contract

JEL Classification: K19, K30, L30, R50, R51

Suggested Citation

Pryor, C. Scott, Municipal Bankruptcy: When Doing Less is Doing Best (April 11, 2014). 88 Amer. Bankr. L.J. 85 (2014). Available at SSRN:

C. Scott Pryor (Contact Author)

Professor ( email )

225 Hillsborough Street
Raleigh, NC
United States
919.865.4650 (Phone)


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