Fair and Unfair Discrimination in Municipal Bankruptcy

34 Pages Posted: 9 Sep 2014 Last revised: 23 Sep 2014

See all articles by Richard M. Hynes

Richard M. Hynes

University of Virginia School of Law

Steven D. Walt

University of Virginia School of Law

Date Written: September 8, 2014

Abstract

Some bankrupt municipalities have proposed plans of reorganization that offer substantially greater recoveries to their active workers and retirees than those offered to other creditors. Because these greater recoveries are not mandated by a priority enjoyed by the active workers and retirees, a judge can only approve such a plan if it does not “discriminate unfairly” against a class of disfavored creditors that votes against the plan. This paper describes the law defining the unfair discrimination standard, identifies the categories of circumstances in which discrimination between co-equal classes is permitted, and argues that the claims of retirees and active workers do not fall into any of these categories. We conclude that current law does not allow a judge to approve a reorganization plan that provides retirees and active workers with a greater recovery.

Keywords: Municipal bankruptcy

Suggested Citation

Hynes, Richard M. and Walt, Steven D., Fair and Unfair Discrimination in Municipal Bankruptcy (September 8, 2014). Virginia Public Law and Legal Theory Research Paper No. 2014-55; Virginia Law and Economics Research Paper No. 2014-14. Available at SSRN: https://ssrn.com/abstract=2493529 or http://dx.doi.org/10.2139/ssrn.2493529

Richard M. Hynes (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

Steven D. Walt

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
804-924-7930 (Phone)
804-924-7536 (Fax)

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