MUNICIPAL BANKRUPTCY ACT 48 Stat. 798 (1934)

This legislation, amending the Bankruptcy Act of 1898, declared "a national emergency caused by increasing financial difficulties of many local governmental units." Hearings on the bill disclosed that over 2,000 municipalities in all forty-eight states were in default—including such cities as Detroit and Miami—to an estimated total of nearly three billion dollars. The act conferred original jurisdiction on federal bankruptcy courts in proceedings for the relief of "any municipality or other political subdivision of any State." Such taxing districts were thus enabled to file petitions asserting their inability to meet their debts. The act required submission of a "plan of readjustment" to accommodate a municipality's debts. The courts could enforce a plan that was "fair [and] equitable" and was approved by either two-thirds or three-quarters of the creditors, depending on the nature of the district. Section 80(k) stated that "nothing contained in this chapter shall be construed to limit or impair the power of any State to control … any political subdivision" and required state approval of these bankruptcy petitions.

A 5–4 Supreme Court invalidated this act in ashton v. cameron county water district (1936), but the Court sustained a substantially similar act in United States v. Bekins (1938).

David Gordon
(1986)

Bibliography

Jackson, Robert H. 1941 The Struggle for Judicial Supremacy. New York: Knopf.