Economic footnote from the U.S. -- a flat broke Harrisburg PA files for bankruptcy

Yes, under the United State Bankruptcy Code (Chapter 9), a municipality or a county may indeed file for bankruptcy protection. It's a rarely used, last resort legal procedure, typically employed to gain some leverage while a governmental entity tires to renegotiate debt with creditors. Today the city of Harrisburg, PA joined the small club of local governments which have been forced to do so.

Harrisburg is in hock to the tune of about $300 million, and is struggling to pay its basic bills. Many city vendors have not been paid for months. The city council voted 4-3 to file the bankruptcy, a move which mayor Linda Thompson strongly opposed.

The largest Chapter 9 bankruptcy in U.S. history occurred in 1994, when Orange County, California, filed after suffering more than $1 billion in investment losses. Not all states permit their cities or counties to invoke Chapter 9 relief, and some require advance legislative approval before a local entity bankruptcy may be filed.