Vallejo proposes defaulting on some debts
The city of Vallejo, which filed for bankruptcy in 2008, has proposed paying its unsecured creditors, who are mostly current and former employees, as little as 5 to 20 percent of the amount they say they are owed in a bid to return the economically shaky community to fiscal health.
John Knox, a San Francisco lawyer representing Vallejo, said the proposal not to repay all its debts is "probably rare" for a municipal bankruptcy. But he said it would save the city "tens of millions of dollars," including claims for unpaid sick leave and vacation.
The plan, filed Tuesday in U.S. Bankruptcy Court in Sacramento, comes as other California cities maneuver to avert financial meltdowns. Chowchilla, in Madera County, missed a payment on a municipal revenue bond, and Bell, in Los Angeles County, struggles to remain afloat after its top officials spent lavishly on their salaries. But municipal bankruptcies remain the exception. Orange County, which filed for protection in 1994, remains the biggest.