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Judge: City of Stockton Eligible for Chapter 9 Bankruptcy

Above: Stockton City Manager Bob Deis talks outside the federal courthouse in Sacramento following the ruling by U.S. Bankruptcy Judge Christopher Klein that the city is eligible for Chapter 9 bankruptcy.

A federal bankruptcy judge said the city of Stockton is eligible for Chapter 9 bankruptcy.

The ruling is a relief to Stockton leaders who said their efforts to get in and out of bankruptcy have been slowed by Wall Street Creditors. And it’s a loss for the creditors, who argued the city had manufactured its fiscal insolvency and did not negotiate in good faith.

In fact, U.S. Bankruptcy Judge Christopher Klein was openly scornful of the creditors’ argument that the city was required to negotiate in good faith – but the creditors themselves were not.

"I'm sorry," Judge Klein said from the bench, "I'm not persuaded. Negotiation is by definition a two-way street. You cannot negotiate with a stone wall.”

Stockton’s city manager said the ruling hits the “pause button” on further budget cuts – and offers a fresh chance to negotiate with creditors.

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