published Monday, March 5th, 2012

Judge clears way for record bankruptcy in Alabama

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BIRMINGHAM, Ala. — A judge in Birmingham has cleared the way for an Alabama county to move forward with the largest municipal bankruptcy in U.S. history.

U.S. Bankruptcy Judge Thomas E. Bennett says state law authorizes Jefferson County, Alabama's largest county, to file for bankruptcy. Bennett is overruling objections by Wall Street creditors, who asked him to dismiss the bankruptcy petition.

Bennett issued his order late Sunday.

Jefferson County filed the largest municipal bankruptcy ever in November after years of negotiations failed to resolve a more than $4 billion debt linked to borrowing for the county's sewer system.

Lenders asked Bennett to throw out the case, arguing Alabama law doesn't allow Jefferson County to file a municipal bankruptcy. That would have sent the case back to negotiations.

The judge disagreed, authorizing the bankruptcy.

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