ABC 33/40 - Birmingham News, Weather, SportsDoes JeffCo have the right kind of debt to qualify for bankruptcy?

Does JeffCo have the right kind of debt to qualify for bankruptcy?

Jefferson County made its case for bankruptcy protection in federal bankruptcy court. But its ability to file could rest on another case before the Alabama Supreme Court.

Sewer creditors are asking the federal bankruptcy judge to wait for the court's decision on a similar case under consideration. The issue is the same as Jefferson County's- can a government qualify for Chapter 9 bankruptcy without bond debt?

There are two types of loans- bonds and warrants.

Jefferson County has warrants, and that could be the problem.

Alabama law requires bonds to qualify for bankruptcy.

The county has had bonds, but they are paid off.

Commission President David Carrington is certain about Jefferson County's eligibility for bankruptcy protection.

"We surely are a municipality. We surely negotiated in good faith. We are surely authorized by the Alabama Constitution to file Chapter 9," said Carrington.

Creditors disagree. The county's debt that is in default comes from 3.2 billion dollars in sewer warrants, 800 million dollars in school warrants and 105 million dollars in general obligation warrants. Creditors argue state law requires the debt to come from bonds, not warrants.

It's the conclusion another court came to in the City of Prichard, Alabama's bankruptcy filing.

But Jefferson County's bankruptcy attorney Kenneth Klee interprets the law differently. He says although the county has warrants, bonds have been authorized in the past.

"It has issued bonds in the 1930s and 1950s. We believe any of those independently is enough to support the filing," said Klee.

As the judge pointed out, municipalities began opting for warrants instead of bonds in the eighties because obtaining warrants does not require a public vote.

Creditors say it is not their problem if this law is outdated. They contend bonds and warrants are not the same.

"We'll let the judge decide on that," said Carrington.

The judge could wait to see how the Alabama Supreme Court rules in Prichard's case or he could go ahead and issue a ruling. It's not expected to happen until after Christmas.