The good news is that public works construction projects for municipalities are projected to remain a major sector of construction activity for the foreseeable future. The not-so-good news is that municipal bankruptcy filings are on the rise, and they are likely to increase. The issues facing parties under contract with a municipality when it files for bankruptcy protection are playing out nationally in places like Stockton, California, and Detroit, Michigan.

As many creditors have unfortunately discovered, the Bankruptcy Code allows a debtor to sue the creditor for certain payments – called preferences – that the creditor received from the debtor prior to the bankruptcy.