Bankruptcy is a legal procedure for dealing with debt problems of individuals and business.
Bonds of different categories are treated differently in the municipal insolvency chapter.
General bonds are treated just like any other debt and the municipal will not be required to make payments of either principal or interest on account of these bonds as long as the case has commenced in court.
Unlike the general bonds, special revenue bonds require special attention.
This means that this bond requires to be secured and serviced even when the court has commenced the case.
In this situation, an automatic stay cannot be sought for these revenue bonds.
Automatic stay allows the court to stop any collective actions by the creditors against the debtor.
The municipal will thus not be in a position to apply for an automatic stay for these bonds.
It continues with the payment of the bonds even when the case has been filed in court.
In the municipal bankruptcy chapter, the debtor must have a plan on how the debt will be settled.
They have to make plan for the bond adjustments.
This plan must be filed after the petition has been filed and not later than the time instructed by the court.
The creditors and court do not have the authority whatsoever to file a suit instead of the debtor.
This is an advantage to the debtor in that they still remain in control of their governmental duties even when the case is on.
The court will accept the plan filed once some conditions are fulfilled.
One of the most important conditions is that once the state has approved the plan, and that it is in order with the bankruptcy code, all payments made for service or expenses have to be disclosed.