Stockton, California may be the largest U.S. cities to file for bankruptcy. The city is expecting to file a Chapter 9 bankruptcy as soon as this Friday June 29, 2012. At one point, the city benefited from the housing boom, but now it has the second-highest foreclosure rate in the nation. The city officials projected a $26 million deficit for its most recent fiscal year.
The decision was made after talks with bondholders and labor unions failed. While the city seeks court approval for a plan that balances its revenue with its debt, it will be allowed to suspend payments to creditors.
Municipalities have been allowed to file for protection since Congress added Chapter 9 to the bankruptcy code in 1937. Since the housing and financial crisis began municipal bankruptcies in the U.S. became more common. Court records show that 10 of 42 cases filed since 1981 have come in the past four years.