Central Falls’ Bankruptcy and the Principle of Shared Pain
By James Tatum
The small city of Central Falls, Rhode Island filed for Chapter 9 bankruptcy in 2011, with five other cities. The case could have easily been overshadowed by the insolvency of other sizable jurisdictions. Instead, Central Falls’ case is particular in both the treatment of bondholders and pensioners – one class of creditors was completely protected, while the other suffered deep cuts. The purpose of this article is to examine the method used to distribute losses in Central Falls’ case, and consider the effects of special protections for bondholders, on both the bondholders themselves and other parties to municipal bankruptcy.
Source: SSRN
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