Faced with over $2.5 million in debt, the Cedarville California-based Surprise Valley Health Care District filed for Chapter 9 bankruptcy protection this week. The company is the owner and operator of a 26-bed hospital named Surprise Valley Hospital, located in Modoc County and provides medical services to an estimated 1,500 people. The hospital’s board of directors has struggled with debt and toiled over the decision to file for a California Bankruptcy for over two years.

Chapter 9 Bankruptcy

A Chapter 9 bankruptcy isn’t as common as a Chapter 11 bankruptcy, as there are typically only a dozen filed every year. Since 2010, only around 65 Chapter 9 Bankruptcy petitions have been filed in the U.S. Bankruptcy Courts. When Chapter 9 bankruptcies do occur, they are usually big news since this little-known chapter of bankruptcy is reserved for the financial adjustment of debt of municipalities such as cities, counties, taxing districts, and municipal utilities.

Surprise Valley’s Bankruptcy Case

In the Chapter 9 bankruptcy petition, the Surprise Valley Health Care District listed assets between $500,000 and $1 million with liabilities in the $1 million to $10 million range. The board of directors for the healthcare district stated in its bankruptcy filing that if it was not able to reorganize its debt under bankruptcy protection that the health, safety, and well-being of local residents would be placed in jeopardy. As part of its bankruptcy financing, the organization has agreed to obtain $1.5 million in debt financing from Denver, Colorado-based CadiraMD. As part of the agreement, Surprise Valley Health Care District must sell the hospital.

For most individuals familiar with the ongoing Surprise Valley situation, it’s not a surprise that the district will be filing for bankruptcy in California. The hospital has been burdened with debt, including overdue state and federal payroll taxes. Additionally, residents of the small, high desert town have been public in their distrust and criticism of hospital leadership. Under Chapter 9 bankruptcy the municipality will work to reorganize and propose a plan of repayment, which is similar in nature to a Chapter 11 bankruptcy.