Debra March

Document Type

Research Memorandum

Publication Date




The Bankruptcy Code provides two automatic stays in cases under chapter 9. These automatic stays, with limited exceptions, prevent both direct and indirect collection efforts against a municipal debtor. The first automatic stay provided by section 362(a) generally stays all direct collection efforts against the debtor. In addition, section 922(a) provides for an automatic stay that, with limited exception, also stays the commencement and continuation of claims against an officer as inhabitant of a municipal debtor, and the enforcement of a lien on or arising out of taxes or assessments of the municipal debtor. However, section 922(a) imposes a broader automatic stay than section 362(a).

The automatic stays imposed by sections 362(a) and 922(a) allow a municipality to operate in order to adjust creditors’ claims; the municipal debtor can benefit from these automatic stays, in order to negotiate and implement a plan of adjustment to restructure its debt and obligations. Section 922(d), however, provides an exception to the automatic stays imposed by sections 362(a) and 922(a). This exception allows the municipality to make certain post-petition bond payments and to distribute certain pledged funds to its bondholders. In particular, section 922(d) provides, “Notwithstanding section[s] 362 [and 922(a)] a petition filed under…chapter [9] does not operate as a stay of application of pledged special revenues in a manner consistent with section 927 of this title to payment of indebtedness secured by such revenues.” The purpose of section 922(d) is to protect the pledge of special revenues made by the municipality under the special revenue bonds. Section 922(d) was included in the Bankruptcy Code in order to “prevent the delay and expense” from countless requests for relief during the automatic stays, in order to enforce such pledges since many state statutes had “mandated the application of pledged revenues after payment of operating expenses to the payment to secured bonds.” This section allows a municipal debtor to make a post-petition payment of pledged special revenue funds to bond holders. Section 922(d), however, does not mandate that payments be made; rather, the section only permits such payments.



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