The Bankruptcy Code dictates who is eligible to be a debtor in bankruptcy. Section 109(a) generally provides that “a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under [the Bankruptcy Code].” Although a debtor that is a “person” or a “municipality” maybe eligible to file for bankruptcy, section 109 restricts which chapters that a debtor may file under. In particular, subject to various restrictions, a “person” may be a debtor under chapter 7, 11, 12, or 13. A municipality, however, is only eligible to be a debtor under chapter 9, and then only if the municipality can meet section 109(c)’s strict eligibility requirements. Accordingly, a court’s determination of whether a debtor is a person or municipality will determine which chapter the debtor may file under.
Courts’ determinations of whether a debtor is a person or a municipality is particularly important because, recently, private non-profit organizations are increasingly carrying out tasks traditionally performed by governments. Private non-profits working closely with governments pose an interesting problem in the Bankruptcy Code, because they seem to fulfill some public function, while retaining the features of a private company. Such entities may resemble municipalities in the sense that they are subject to extensive governmental oversight and regulation, while at the same time retaining characteristics of private entities, such as the ability to select their own corporate officers, set their own budget, and manage their own day-to-day operations. Therefore, the question is whether such non-profits are “persons,” eligible to pursue chapter 7, 11, 12, or 13 bankruptcy, or “municipalities,” restricted to filing under chapter 9.
Given that the Bankruptcy Code imposes different eligibility requirements for each chapter, which vary in difficulty, this Article discuss courts’ recent interpretations of the term “governmental unit” and “municipality.” Part I examines the eligibility requirements for chapter 9 and chapter 11. Part II will discuss the test applied by the courts when determining whether an entity is a “governmental unit.” Part III examines the requirements for being a municipality. Part IV discusses the implications for a debtor.