On its first official day in bankruptcy, the city of Stockton now must grapple with how to share the financial burden equitably among creditors while meeting its massive state pension obligations.
At the conclusion of a three-day trial, a judge on Monday formally granted the city Chapter 9 protection, over the objections of creditors who questioned whether it was fair for the city to fully meet its obligations to the state pension system while other debt holders go partly paid.
"The fear is that there is going to be a run on the bank," said bankruptcy attorney Michael Sweet, who has been monitoring the Stockton trial. "Everyone is going to be cutting CalPERS" payments if Stockton is allowed to do it.
California's $225 billion Public Employees Retirement System already is underfunded by $87 billion, which means there are more payments due to retirees than there is money in the system.
Previously published in the U.S. News & World Report
This article also appeared on The Huffington Post, ABC News.com, The Washington Post,The Miami Herald and Bloomberg BusinessWeek.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
