Biggest Broke City Can Enter Bankruptcy: Judge

Stockton, Calif., allowed to pay less to bondholders

By Neal Colgrass,  Newser Staff

Posted Apr 1, 2013 6:45 PM CDT

(Newser) – The biggest US city to file for bankruptcy was allowed to press ahead today despite outcry from its creditors, the Wall Street Journal reports. A federal judge approved Chapter 9 protection for Stockton, Calif., saying it "will not be able to perform its obligations to its citizens" without bankruptcy restructuring. But bondholders are mad because Stockton wants to reduce its debt payments without cutting pension funds, which are scheduled to pay out millions over the next 10 years.

The city of 300,000 east of San Francisco could also become a landmark case, because other areas under chapter 9, like Jefferson County, Ala., and San Bernardino, are also trying to make deals with bondholders. Bloomberg details the fruitless talks between Stockton and its creditors, but the battle may not be over: The judge ruled that bondholders can still try to stop the city's restructuring plan in the next phase of the process, the AP reports.

In this Feb. 29, 2012 file photo, a Stockton city worker walks out of city hall in Stockton, Calif.   (AP Photo/Ben Margot, File)
In this Feb. 29, 2012 file photo is a view of the Stockton waterfront seen from the Waterfront Hotel in Stockton, Calif.   (AP Photo/Ben Margot, File)
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