Harrisburg's Bankruptcy Ruled Illegal
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Harrisburg’s Bankruptcy Ruled Illegal

December 6, 2011


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Harrisburg, Pennsylvania, filed for bankruptcy protection late last month, but a U.S. Bankruptcy judge has since ruled that the filing was illegal. Rather than enjoying the protection afforded by the bankruptcy court, Harrisburg will plan to enter receivership, according to reports from Bloomberg News.

At present, the receiver designated for Pennsylvania’s capital is David Unkovic, head lawyer for the state’s department of economic development; however, this designation will not be official until it is approved by a state court.

Reactions to the judge’s ruling have been mixed: those who opposed Harrisburg’s bankruptcy are apparently pleased at the speed with which the judge reached her decision. Those who supported the bankruptcy filing (including, according to sources, at least one member of the city council that initially voted in favor of bankruptcy) might appeal the decision.

Bankruptcy Prevention Laws

The reason Harrisburg’s bankruptcy has been ruled illegal is that the Pennsylvania legislature passed a law this year (known as Act 26) that prevents cities of a certain size from filing for bankruptcy prior to July of next year. Harrisburg falls into the size prohibited by the law, and thus is not permitted to file for bankruptcy protection at this time.

Another wrinkle in the matter is that Harrisburg’s mayor was reportedly not on board with the bankruptcy petition. The bankruptcy petition was filed by members of the city council, which voted in favor of bankruptcy in early October; however, state law dictates that all leading parties of a municipality must be aligned in order for a bankruptcy petition to go through.

Without the mayor’s support, then, the Harrisburg bankruptcy had little hope of surviving a court challenge.

The Future of Harrisburg’s Finances

In theory, the plan moving forward for Harrisburg is for the city’s receiver to implement a debt-management plan that will allow the city to catch up on its massive debts. The bulk of its financial obligations relate to an incinerator that the city overhauled some years ago but has not been able to pay for since.

At present, it is not clear how the city will repay those debt burdens and move forward with its finances.

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