Internal Revenue Manual - 5.9.7 Processing Chapter 9 and Chapter 15 Bankruptcy Cases

IRS Resources

Part 5. Collecting Process
Chapter 9. Bankruptcy
Section 7. Processing Chapter 9 and Chapter 15 Bankruptcy Cases

Qualifications. To qualify as a debtor under Chapter 9, Adjustment of a Municipal Debt, an entity must, among other things:
- be a municipality
- be authorized to be a debtor by state law
- be insolvent or unable to meet its debts as they mature
- desire to effect a plan to adjust such debts
Confirmation Binding. The provisions of a confirmed plan under this Chapter bind the debtor and any creditor, whether or not:
1. a proof of such creditor’s claim is filed;
2. such claim is allowed under 11 USC § 502; or
3. such creditor has accepted the plan.

Loading the Case. Centralized Insolvency's involvement with Chapter 9 bankruptcies is limited to loading the cases on the Automated Insolvency System (AIS). Any reports generated by the Insolvency Interface Program are to be forwarded to the Field Insolvency group assigned the case following expedited procedures. (See IRM 5.9.11.3.2,Time Sensitive Mail.)

Asset Proceeding. All proceedings under Chapter 9 are to be treated as "asset" cases.
Prompt Counsel Involvement. When Field Insolvency is assigned a bankruptcy filing involving debts of a municipality, immediate contact must be made with Counsel for guidance. Chapter 9 is a complex bankruptcy proceeding.

Note:

Because of the rare occurrence of a Chapter 9 bankruptcy, IRM 5.9, Bankruptcy, contains limited information on this chapter of bankruptcy filing.

International Cooperation. A primary goal of Chapter 15 bankruptcy is to increase international cooperation in cross-border cases by enabling US bankruptcy courts to recognize foreign insolvency proceedings. Chapter 15 applies in the following circumstances:
1. A foreign court or a foreign representative seeks assistance in the United States in connection with a foreign proceeding;
2. Assistance is requested in a foreign country in connection with a case under 11 USC;
3. A foreign proceeding and a domestic bankruptcy for the same debtor are pending concurrently; or
4. Parties of interest in a foreign country wish to commence or participate in a case under 11 USC.
Ineligible Parties. Chapter 15 bankruptcy does not apply to the following:
1. A proceeding concerning an entity, other than a foreign insurance company, identified by exclusion in 11 USC § 109(b) (including railroads, domestic insurance companies, banks, and other listed financial institutions).
2. An individual (or individual and spouse) who have debts within the limits in 11 USC § 109(e) (debt limits to qualify as a debtor under Chapter 13) and who is a US citizen or lawful alien.
3. Certain stockbrokers and commodity brokers.
International Scope. The requirements of international law make the discussion of Chapter 15 bankruptcies too complex to be included at length in this IRM.

Chapter 7 and Chapter 11. Distribution of assets will occur through the foreign proceeding or through 11 USC Chapters 7 or 11. As with Chapter 9 cases, Centralized Insolvency's involvement with Chapter 15 bankruptcies is limited to loading the cases on the Automated Insolvency System (AIS). Any reports generated by the Insolvency Interface Program must be forwarded to the Field Insolvency group assigned the case following expedited procedures. (See IRM 5.9.11.3.2,Time Sensitive Mail.)

Note:

That a Chapter 11 or Chapter 7 bankruptcy is a result of a Chapter 15 proceeding may not be readily evident.

Prompt Counsel Involvement. When Field Insolvency is assigned a bankruptcy filing involving cross-border filings, the Insolvency caseworker must contact Counsel for guidance.

Part 5. Collecting Process