Unable to pay its debt, Puerto Rico recently filed a Title III petition in federal court. Due to low financial resources and persistent creditor collection efforts, Puerto Rico became the first state or territory to seek this type of relief. With rising debt levels continuing to climb (over $114 billion), Puerto Rico turned to Congress for some much-needed help. Last year, Congress enacted the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). PROMESA combines elements of Chapter 9 and 11 bankruptcies, allowing American Territories to restructure their debts.
Puerto Rico’s recent filing has left many people asking what is Title III and what will it do for Puerto Rico.
What is Title III?
Congress enacted PROMESA as a result of Puerto Rico’s ineligibility to file for Chapter 9 bankruptcy, which is usually reserved for insolvent municipalities in the United States. Title III of PROMESA provides for an oversight board, a debt restructuring process, and expedited means of approving important infrastructure projects.
How will Title III work for Puerto Rico?
Title III of PROMESA, like that of a petition filed under chapter 7, 9, 11 or 13 of the bankruptcy code, prevents a creditor from collecting on a debt they are owed when the automatic stay is in effect. While creditors under Title III (and also under the bankruptcy code) can request relief from the automatic stay “for cause”, relief is only granted in limited circumstances. Here, as a result of the automatic stay, Puerto Rico will be protected from (i) its property being seized, (ii) creation, perfection and enforcement most liens, and (iii) commencement or continued collection lawsuits.
Creditors of Puerto Rico have found themselves in an unprecedented situation of uncertainty. U.S. courts will be called upon to interpret the provisions of PROMESA and attempt to balance the equities and rights of Puerto Rico to that of its creditors.
If you or your business is considering filing for bankruptcy, please call our offices for a free consultation. David S. Jennis is a licensed bankruptcy attorney with over 25 years of experience in representing clients, both in personal and business related bankruptcies. David and his team have represented debtors, creditors, and U.S. Trustees alike, and have both the knowledge and resources to vigorously represent your interests. Offices are located in Downtown Tampa, Florida, please call 813-229-2800 to set up an appointment.