## Facts

- Boise County, an Idaho municipality, faced a $4,000,000 federal judgment under the Fair Housing Act in favor of Alamar Ranch, LLC and YTC, LLC.
- The county’s insurer denied coverage and a defense; related coverage litigation was pending on appeal in the Idaho Supreme Court.
- After settlement talks failed and Alamar pursued collection efforts, Boise County filed a Chapter 9 petition in March 2011.
- The county’s schedules reflected assets exceeding $27.7 million and liabilities of about $7.4 million, including the Alamar judgment and potential attorneys’ fees and costs.
- The county reported roughly $9.9 million in cash or cash equivalents and asserted concern that paying the judgment would impair essential public services.
- Aside from the judgment, the county was generally paying debts as they came due; it had overdue medical-indigency claims totaling about $550,000.
- Evidence indicated the county had access to fiscal tools such as borrowing, budgeting changes, and revenue measures to address significant obligations.
- Alamar objected to Chapter 9 eligibility and moved to dismiss after a three-day evidentiary hearing.

## Issues

1. Whether Boise County was “insolvent” under 11 U.S.C. § 101(32)(C) for purposes of Chapter 9 eligibility under 11 U.S.C. § 109(c).
2. Whether the Chapter 9 petition should be dismissed for lack of eligibility, including concerns that the filing functioned primarily as a response to a single adverse judgment.

## Decision

- The court held Boise County did not prove it was “insolvent” within the meaning of § 101(32)(C).
- Because insolvency is a threshold requirement under § 109(c), the county was ineligible for Chapter 9 relief.
- The court granted the objecting creditors’ motion and dismissed the Chapter 9 case.

## Legal Principles

- Chapter 9 eligibility under § 109(c) requires the debtor to prove each statutory element by a preponderance of the evidence; insolvency is a threshold requirement.
- Municipal insolvency under § 101(32)(C) turns on whether the municipality is generally not paying debts as they become due, or will be unable to do so in the near future; it is not a balance-sheet test.
- In evaluating municipal insolvency, courts consider actual payment practices, liquidity, and realistic fiscal options, including the ability to obtain financing or adjust revenues and expenditures.
- A large, single judgment does not establish Chapter 9 insolvency where the municipality has substantial cash reserves, net assets, and feasible means to pay or finance the obligation.

## Conclusion

The bankruptcy court dismissed Boise County’s Chapter 9 petition because the county’s cash position, overall asset-to-liability picture, and access to financing and revenue measures showed it was not “insolvent” under the Bankruptcy Code, even in light of a substantial civil judgment.


In re Boise County, 465 B.R. 156 (Bankr. D. Idaho 2011)