Fairfield, AL, a Birmingham Suburb, Files Bankruptcy

After experiencing financial difficulties for years, Fairfield, a small suburb of Birmingham, filed for bankruptcy on May 19, 2020.

The city has struggled since one of its largest employers, U.S. Steel, shuttered part of its operation in 2015, causing the loss of hundreds of jobs. Then the next year Walmart closed the city’s Supercenter. These two closures caused a loss in tax revenue, making it hard for the city to pay its creditors and provide services.

The city faced a temporary stop of public bus service, had their police force taken over by the County, and faced a threat of losing water and garbage service. With the onset of the coronavirus pandemic causing even greater economic problems, city officials filed bankruptcy hoping to get a financial fresh start.

Chapter 9 Bankruptcy

The city filed Chapter 9 bankruptcy with the U.S. Bankruptcy Court for the Northern District of Alabama in Birmingham.

Chapter 9 bankruptcy is much like a Chapter 13 bankruptcy or Chapter 11 bankruptcy. It allows for the reorganization of the petitioner’s debt and devises a repayment plan in which the petitioner makes regular monthly payments over time to each of its creditors, often at a reduced rate. Once the petitioner has completed making payments, as per their court-approved plan, the bankruptcy judge will discharge their case. This absolves the petitioner from any further liability on most of their debts.

Unlike Chapter 13 and Chapter 11 Bankruptcy, Chapter 9 bankruptcy is just for the use of municipalities.

The U. S. bankruptcy code defines a municipality as a “political subdivision or public agency or instrumentality of a State.” To qualify for Chapter 9 bankruptcy a municipality must meet four other requirements:

  • It must have specific authorization to file for Chapter 9 bankruptcy under state law.
  • It must have become insolvent.
  • It must have the desire and ability to adjust its debts through bankruptcy.
  • It must have the agreement of a majority of certain types of its creditors (or at least have evidence showing where they attempted to negotiate a better settlement).

Under this bankruptcy code definition and criteria, a municipality could include:

  • cities
  • counties
  • villages
  • townships
  • school districts
  • public improvement districts, and
  • highway, bridge, and gas authorities.

Fairfield Bankruptcy

Fairfield officials hope that a court-approved restructuring of its debt will help them get a handle on their finances. They want to avoid dissolving the city charter and going back into Jefferson County, which filed Chapter 9 bankruptcy itself in 2011, or merging with a neighboring city, such as Birmingham.

The bankruptcy petition states how the city plans to pay back more than $20 million between its 200 and 999 creditors. Here are the top four creditors the city owes and how much:

  • U.S. Bank–$18 million
  • Fairfield Board of Education–$2 million
  • Jefferson County–$1.7 million
  • Alabama Power–$1 million

According to AL.com, Fairfield’s Mayor, Eddie Penny, hopes filing Chapter 9 bankruptcy gives the city “an opportunity to reorganize, reassess our finances.”