Reuters, and several other mainstream media sources, are reporting that the city of Central Falls in Rhode Island filed for Chapter 9 bankruptcy on August 1, 2011.
The city and the state are the smallest in the U.S. Central Falls is one of a few other cities, and counties, that are being faced with fiscal collapse since the economic recession began.
The bankruptcy may cause the city to be frozen out of the U.S. municipal bond market.
Media has reported that the move by Central Falls is both risky and potentially expensive.
Central Falls currently has an $80 million unfunded pension. Retiree health benefits also allegedly are in harm - and total nearly four times the city's annual $17 million budget.
Lincoln Chafee, the Governor of Rhode Island, said, "The current situation is dire and it necessitates decisive steps to put the city back on a path to solid financial footing and future prosperity."
Predictions made last year by Meredith Whitney, a Wall Street analyst, regarding mass municipal defaults, have not yet come to fruition.
Adam Stern, a vice-president at the municipal bond investment firm, Breckinridge Capital Advisors in Boston, said, "A bankruptcy filing is sort of an endgame over years and years of economic distress, so it's not something your typical U.S. town or city is likely to experience anytime soon."
Since 1937 there have been 624 municipal Chapter 9 bankruptcies - five of which occurred last year - per municipal bankruptcy expert James Spiotto.
Harrisburg, Pennsylvania, is considering filing bankruptcy due to a $300 million incinerator debt.
Sean Scott, an attorney specializing in municipal bankruptcy filings, said, "Chapter 9 has been a fairly unusual event but we and many others think that's not necessarily going to be the case going forward."
Central Falls has a population of 19,000 and is located six miles from Providence, the state capital.
Residents shared their thoughts on the filing with news media.
D.M., an employee in a Central Falls auto parts store, voiced this concern: "I'd be curious as to who's going to take it over. Someone has to, but no one wants to. It's going to hurt business, it's all mom and pop stores here."
Another resident concerned about the demise of her city, U.C., said, "It's too bad, because Central Falls has always been a progressive city. We've been here for more than a century."
Allegedly the city has been under state control since July 2010 and has $21 million in outstanding debt.
Retired Judge Robert Flanders, and the state-appointed receiver for Central Falls, said, "Everything was done to avoid this day. Taxes have been raised to the maximum level allowable. We negotiated with...the police and fire unions, without success, attempting to reach voluntary concessions, and we tried in vain to persuade our retirees to accept voluntary reductions in their benefits."
Contact a bankruptcy attorney if you are considering a business or personal bankruptcy filing. The woes of the U.S. economy are trickling down and becoming an issue for many.