Judge rules Stockton, Calif., to enter bankruptcy

SACRAMENTO, Calif. (AP) — The people of Stockton will feel financial fallout for years after a federal judge ruled Monday to let the city become the most populous in the nation to enter bankruptcy.

But the case is also being watched closely because it could answer the significant question of who gets paid first by financially strapped cities — retirement funds or creditors.

“I don’t know whether spiked pensions can be reeled back in,” U.S. Bankruptcy Judge Christopher Klein said while making the ruling. “There are very complex and difficult questions of law that I can see out there on the horizon.”

The potential constitutional question in the Stockton case is whether federal bankruptcy law trumps a California law that says money owed to the state pension fund must be paid.

In making his ruling, Klein disagreed with creditors who argued that Stockton failed to pursue all avenues for straightening out its financial affairs.…more

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