Judge OKs Jefferson County Bankruptcy

March 8, 2012 Updated: March 8, 2012

The latest in a debtor versus collector match lasting years: Jefferson, Ala., can file for bankruptcy as ordered by U.S. Bankruptcy Judge Thomas B. Bennett on March 4.

Jefferson County holds $4.3 billion in debt mostly from past sewage works. The county, named after founding father Thomas Jefferson, will become the most populated county with the largest bankruptcy filing in the United States.

The county initially filed for bankruptcy in November 2011. The collectors who lent the money to Jefferson County were financial corporations, banks, and individuals.

The objectors challenged the county’s bankruptcy by claiming the debts Jefferson County held were of a certain kind—warrants, and that warrants are unable to claim bankruptcy.

Judge Bennett overruled the creditors and ordered that Jefferson is a municipality and can file for bankruptcy according to the laws in Alabama.

Judge Bennett wrote a 28-page memo reviewing Alabama bankruptcy law and its history beginning in 1935. “It is part of the enhanced refinancing and restructuring of debt authority,” wrote Bennett.

According to the memo Judge Bennett wrote, to understand and interpret Alabama’s laws it “involves knowing its statutes directing how its laws are to be read,” in response to collectors objecting the bankruptcy.

According to the order by Judge Bennett, Jefferson County “negotiated in good faith with creditors and failed” in reaching an agreement to resolve the massive debt.

Assured Guaranty, one of the many collectors, said in an email statement it “attempted to work constructively with the Jefferson County Commission and … produced a reasonable settlement.” There are 15 Jefferson County bankruptcy objectors listed on the order from Judge Bennett and more than a handful of creditors.

“Local governments must recognize their responsibilities to honor commitments established by current and former duly elected officials and follow through on them,” said Assured Guaranty in a statement.

Assured Guaranty said, “A breach of trust with creditors … will hurt local communities through higher expenses and limited access to debt markets.”

Debt Ripples on Jefferson

According to Birmingham Water Works website, “The Water Works Board of the city of Birmingham is completely separate from and independent of Jefferson County and its sewer operations,” and Jefferson’s bankruptcy will have no effect on BWWB service or operations.

The water and sewer are separate entities but the two are billed together. According to BWWB website, the combined billing is convenient for its customers. However, it is not possible to pay one without the other.

Libby Rich, owner of Plant Odyssey—a garden shop, said, “The sewer rate tied to the water bill holds many people hostage; you must pay it or face having your water cut off,” in an email. “I do not think this is fair,” wrote Rich.

“We, the people who use water, did not sign any contract for this debt so we should not be held responsible. All businesses and citizens are hurt by this gross injustice,” said Rich.

Dishonest use of funds eventually landed a handful of people who once served on Jefferson’s County Commission in court and federal prison on charges of corruption and fraud.

According to Rich, she is thankful someone went to jail and, “It is my opinion any person involved in this fiasco should be in jail.”