Introduction

What happens when monies are loaned for a specific purpose but that purpose fails? Should those monies fall within the general assets of the recipient upon bankruptcy or insolvency?

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.