Jefferson County’s bankruptcy filing could come down to a distinction between a bond and a warrant, and maybe even the grammar of the Alabama Legislature.
While Jefferson County’s debt has been casually referred to as “bond” debt, all of the debt is, in fact, in warrants, not bonds. In Alabama bond debt requires approval in a public referendum and the bonds must be put out of bid. Warrants carry neither requirement.
Lawyers for the creditors argued Thursday that Alabama law only allows a municipality to file for bankruptcy only if it has bond debt, not warrants. The county would then be prohibited under Alabama law from filing for bankruptcy.
In 2009, Prichard, Ala., filed for Chapter 9 bankruptcy, but the courts rejected the filing because of the Alabama law. The city has appealed the decision to the Alabama Supreme Court, which has had the case for more than six months without rendering a decision.
United States Bankruptcy Judge Thomas Bennett said in court that the county meets all other eligibility requirements for Chapter 9, but witheld any decision regarding the state statutory question. Bennett asked both sides for input draft questions to give the Alabama Supreme Court.
Both sides have until Dec. 28 to submit their drafts.