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Can a Public School District Declare Bankruptcy?

Can public school districts go bankrupt?

It is a pressing issue that affects the education system as a whole in the U.S. A study in 2020-21 found that there are 13,187 public school districts in the U.S., and federal, state, and local governments fund these districts. [1] However, districts may face severe financial difficulties like other personal or business endeavors.

Here we explore the typical reasons behind a public school district filing for bankruptcy, bankruptcy laws, the eligibility criteria for declaring bankruptcy, and the process for filing bankruptcy under Chapter 9 for a public school district.

Public School District

A public school district is a governmental entity responsible for providing public education within a specific geographic area. It oversees and operates public schools, manages educational programs, and employs teachers and staff to ensure education is provided to students within its jurisdiction.

In most districts, the school board is at the top of the organizational hierarchy. It provides oversight and governance for a school district and its schools. The superintendent of schools follows the school board, along with executive officials or assistant superintendents who oversee various departments within the district’s bureaucracy.

In addition, a school principal is in charge of the daily operations of a particular school and reports to the district’s superintendent. These districts are funded by 43% from states, 44% by local governments, and 13% by the federal government for elementary and secondary education. [2]

What Entails a 'Public School District'?

Common Reasons for a Public School District Declaring Bankruptcy

As districts strive to maintain high education standards, they can face budget crises that may lead to declaring bankruptcy. Here are common reasons why a public school district might experience financial difficulties:

Bankruptcy Laws that Apply

If a school district accrues more debt or financial hardship than can be paid off, schools can file for Chapter 9 bankruptcy or “municipality bankruptcy”.

Chapter 9 bankruptcy helps schools reorganize their debt when they are in financial trouble by extending debt maturities, reducing the amount of interest, or refinancing the debt by obtaining a new loan.

After a bankruptcy court confirms its plan for handling debt, it follows until it can recover from bankruptcy. While municipality bankruptcies are not common, they can be useful for organizations like schools with a lot of debt. [3]

Bankruptcy Laws that Apply in this Scenario

Eligibility Criteria for Bankruptcy Under Chapter 9 for a Public School District

To be eligible for Chapter 9 bankruptcy, a district must meet several criteria: 

Step-by-Step Process to File Bankruptcy Under Chapter 9 for a Public School District

Filing for bankruptcy under Chapter 9 can be a complex process for public school districts facing financial difficulties. Here is a general step-by-step bankruptcy process for filing bankruptcy under Chapter 9 for a public school district:

Step-by-Step Process to File Bankruptcy Under Chapter 9 for a Public School District

Contact Richard West’s law office today and begin the process of filing for Bankruptcy Under Chapter 9 to secure your public school district’s financial stability and safeguard its future.


Can a public school district legally declare bankruptcy?

Yes, districts can file for bankruptcy protection under Chapter 9 of the U.S. Bankruptcy Code. However, districts should meet the eligibility criteria mentioned in the same chapter.

How does bankruptcy affect the district's employees and their contracts?

Bankruptcy can lead to renegotiation or restructuring of labor contracts, potential layoffs, and changes in employee benefits as the district works to reduce expenses and streamline operations.

What are the reasons a public school district might consider bankruptcy?

Public school districts might consider bankruptcy a last option when facing severe financial distress. Reasons could include debt, declining enrollment leading to reduced revenue, pension liabilities, inability to meet financial obligations, or significant budget deficits.


[1] Public school district (United States) – Ballotpedia. (n.d.). Ballotpedia.

[2] Public school district (United States) – Ballotpedia. (n.d.). Ballotpedia.

[3] Chapter 9 – Bankruptcy Basics. (n.d.). United States Courts.

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