A northwestern Indiana lawmaker said that he will push a measure next year that would change state law to allow local governments to file for bankruptcy, the Indianapolis Business Journal reported yesterday. Indiana Sen. Ed Charbonneau said that it’s time for Indiana to set up a process to make bankruptcy an option for distressed local governments when all other choices have been exhausted. Federal bankruptcy laws allow municipal governments to seek chapter 9 protection only if their state authorizes it. Only 28 states allow local government bankruptcies under various conditions. A dozen states, including Michigan, allow municipal bankruptcies when state remedies have been unsuccessful. Former Indiana Gov. Mitch Daniels signed a law in 2012 allowing the executive and fiscal bodies of a local government to jointly ask the state’s Distressed Unit Appeals Board to designate their local government as distressed. To receive the designation, the local government must meet one of eight conditions, such as defaulting on debt, skipping payroll or failing to pay vendors. If the criteria are met, the board then can appoint an emergency manager with powers to reduce the local government’s spending, renegotiate labor contracts and audit its books.
