San Bernardino judge frustrated with slow bankruptcy process

While other larger bankruptcy cases in Detroit and Stockton seem to be moving along, Reuters reports the bankruptcy judge in the San Bernardino bankruptcy case has complained about the inability of the city and their largest creditor California Public Employees’ Retirement System (Calpers) to come to an agreement.

Bankruptcy

Judge Meredith Jury has threatened to establish a deadline for San Bernardino to complete their debt adjustment plan. The deadline is likely to be set on June 19, which is the date of the next bankruptcy meeting.

San Bernardino bankruptcy debt plan stalls

San Bernardino, a city near Los Angeles, filed for Chapter 9 bankruptcy protection almost two years ago but has failed to create a debt readjustment plan or negotiate with their creditors. The progress is especially slow when compared to Detroit, who filed the largest bankruptcy case in history just last summer, submitted their debt readjustment plan this February and has made great progress negotiating with dozens of creditors. Stockton, a larger California city, also declared bankruptcy in 2012 and they are also close to emerging from bankruptcy.

The judge is not the only person who is frustrated. The lengthy talks with Calpers, America’s biggest public pension fund and creditor for San Bernardino, has also taken a toll on union members. In fact, safety unions had their benefits slashed by 14% last January by the city, a move which cannot be challenged during bankruptcy proceedings. An attorney for the firefighters said the cuts were so substantial some of the fire fighters have been forced to declare bankruptcy.

What’s next for San Bernardino?

Creditors and San Bernardino city officials will meet again this week to continue their negotiations. Calpers, who is America’s biggest public pension fund with assets of $277 billion, will continue private discussions with the city and see what, if any, agreements they can make to repay pension obligations.

San Bernardino, like Stockton and Detroit, both have pension obligations they cannot afford. At question is whether pension benefits and bond debt must be treated the same or whether pension holders have the legal right to higher pay offs. Bondholders argue the cities should be forced to make payments to both groups in a similar fashion and not discriminate against either group.

According to Reuters, “The San Bernardino case is being closely watched by creditors. Along with Detroit, it is likely to set precedent on whether retirees or Wall Street bondholders should suffer the most when a local government goes broke.”

Similar issues in Stockton bankruptcy case

The issues in San Bernardino are also similar to the ones currently under discussion in Stockton. Stockton’s bankruptcy is also under intense scrutiny and will establish a precedent for creditor payments. If the issues cannot be resolved, we may see the case appealed to the United States Supreme Court. The credit repayment structure created by this bankruptcy could be used in other Chapter 9 bankruptcies, which are likely to follow, especially for other cities which have high pension debts.

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Beth

Beth L. has been a contributing writer to websites since 2008. She has a background in Business Management and Management Information Systems and graduated from the University of Texas in 1996. Now she specializes in content development for legal entities for issues regarding bankruptcy, personal injury and Social Security Disability law.
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About Beth

Beth L. has been a contributing writer to websites since 2008. She has a background in Business Management and Management Information Systems and graduated from the University of Texas in 1996. Now she specializes in content development for legal entities for issues regarding bankruptcy, personal injury and Social Security Disability law.