City of Stockton Qualifies For Bankruptcy Protection

A federal judge has ruled that the city of Stockton, California, is eligible for bankruptcy protection. Thus, the Chapter 9 bankruptcy case filed by the city will continue.

Stockton, which is home to some 300,000 residents, recently became the largest city in the United States to file for bankruptcy protection. The city joins fellow California city San Bernardino as one of a string of major U.S. municipalities to file for bankruptcy in recent months. Jefferson County, Alabama, has also made such a filing in the past year.

In his ruling, Bankruptcy Judge Christopher Klein stated that the reason he decided to allow the case to continue is that creditors who invested in the city neglected to take the 90-day mediation negotiations with Stockton seriously. Those same creditors, though, argued that the city also showed a lack of good faith in attempting to pay off its debt to the CalPERS pension system.

While Klein is allowing the bankruptcy to continue, he noted that one matter he will keep an eye on throughout the proceedings is how pensions will be affected.

“This does not mean there is not potentially a serious issue involving CalPERS,” Klein noted after his ruling on the case. “But at this point I do not know what that is.”