Cle Elum Bankruptcy: From the Agreement to Today.

June 24, 2025 · The Chapter 9 petition

The City files after mediation and bank-account garnishments

Cle Elum filed a voluntary Chapter 9 municipal bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of Washington, Case No. 25-01128-WLH9. The immediate backdrop was the City Heights judgment arising from the parties’ 2011 development agreement. An arbitrator had awarded approximately $22.23 million in November 2024; after subsequent court judgments and additions, the amount owed was approximately $26 million as of May 2025, according to the bankruptcy court’s later findings.

The judge’s July 2026 opinion reports that City Heights garnished about $465,000 from two city bank accounts in May 2025 while mediation was ongoing. Settlement discussions did not reach agreement. The city said the filing was necessary to protect municipal operations; City Heights disputed aspects of the city’s conduct and later challenged its eligibility for Chapter 9.

What filing accomplished: Bankruptcy’s automatic-stay protections generally halted collection efforts while the court considered the case. It did not cancel the judgment or immediately determine how much City Heights would ultimately receive.

Read: City’s June 24 announcement (PDF) · Court’s July 2026 opinion, pp. 2–4 · U.S. Courts: Chapter 9 basics

July–November 2025 · Creditor notices and recovery of frozen funds

Bankruptcy shifts the dispute from collection to a court-supervised process

In July 2025, the bankruptcy case formally notified creditors and interested parties of the Chapter 9 proceeding, claims process, and automatic stay. Public pleadings began to appear through the city’s claims and noticing agent, Stretto. These steps brought creditors besides City Heights into a proceeding whose ultimate outcome would affect how claims against the city are handled.

Following the filing, the city also pursued an adversary proceeding challenging the earlier garnishment transfers and liens. On November 6, 2025, the bankruptcy court entered a stipulated judgment avoiding the garnishment writs and associated liens, requiring cooperation to release garnished money and unfreeze accounts. This changed City Heights’ collection position, but it did not extinguish the underlying judgment claim.

The parties also tried post-filing settlement talks with the assistance of another bankruptcy judge. Those discussions did not produce a settlement, setting up the next major dispute: whether the city was entitled to proceed under Chapter 9 at all.

Read: July 2025 notice of commencement (PDF) · Court opinion, pp. 3–4 (Nov. 6 judgment cited in footnote 14) · Public claims-agent case portal

October 10–17, 2025 · Public opinion research, published in December

Residents were surveyed about taxes, asset sales, and the judgment

The city commissioned a voter survey as it considered ways to address the judgment and future budget needs. In its published executive summary, Probolsky Research reported that 57% supported a modest sales-tax increase, 70% opposed an increased property tax, and 75% favored selling city-owned assets. The results indicate preferences in the surveyed group, not authorization for any specific measure or sale.

The methodology matters: the survey interviewed 154 Cle Elum voters online and by phone and reported a ±7.5 percentage-point margin of error. The question wording, sample size, and the distinction between stated preferences and actual ballot outcomes all matter when interpreting those figures.

Read: Probolsky Research voter poll executive summary (PDF)

March–July 2026 · An eligibility challenge and a consequential ruling

City Heights challenged good faith. The bankruptcy judge ruled for the city.

City Heights filed an objection to the city’s Chapter 9 eligibility in March 2026, arguing that the filing was not made in good faith. This was a meaningful legal hurdle. A city does not obtain a confirmed right to adjust debts merely by submitting a petition; the court must determine whether it qualifies to proceed.

Judge Whitman L. Holt conducted an evidentiary hearing on May 4–5, 2026, receiving testimony and reviewing settlement-related evidence. The court overruled the objection and entered an order granting Chapter 9 relief on June 24, 2026. On July 14, 2026, the judge issued a detailed published opinion explaining why the city acted in good faith and was eligible to proceed.

This is an important change from what was uncertain when some earlier articles on this page were written. The court concluded that the city met the threshold for Chapter 9. That ruling did not decide the final payment amount, erase the contractual breach found in arbitration, or approve a repayment plan. It allowed the case to move to its next stage.

Read: Mayor’s June 8 case update · Judge Holt’s July 14 opinion (PDF) · Bankruptcy court opinions index

August 21, 2026 · A proposed plan of adjustment

The discussion moves from eligibility to how debt might actually be paid

After winning the eligibility dispute, the city filed a proposed Chapter 9 plan of adjustment on August 21, 2026. The plan proposed how creditor claims might be classified and paid over time. It included potential revenue measures and municipal property dispositions. A proposal is not a court-approved payment agreement, and creditors may contest its terms.

The plan’s definitions describe a $26,415,746 gross City Heights judgment-related claim, with a proposed setoff connected to an allowed Gordon Thomas Honeywell claim, resulting in a stated $23,947,376.84 net Class 9 claim. These figures concern the proposed claim treatment; they are not amounts already paid, agreed to in settlement, or guaranteed for future distribution.

According to the accompanying disclosure materials, the city reported $4,734,633 in 2025 General Fund revenue against $4,916,550 in expenditures, a deficit of $181,917, and a year-end book balance of $434,925. The materials describe enacted sales-and-use tax measures and an additional transportation-tax proposal requiring voter approval. The financial significance of every measure depends on its legal status, timing, yield, restrictions, and actual collection.

The central financial question: What sustainable, legally available annual cash flow can the city generate after providing essential services, and what share can a confirmed plan require it to devote to creditors?

Read: Public analysis with links to proposed plan and disclosure statement · Bloomberg Law, Aug. 24 plan coverage · City’s 2026 adopted budget (PDF)

September 17–30, 2026 · Negotiation returns to the forefront

A settlement judge is appointed, but no settlement is announced

On September 17, the disclosure-statement approval hearing was taken off its prior track at the city’s request and converted into a status conference. At the September 23 hearing, the parties asked for Bankruptcy Judge Christopher M. Klein to serve as a settlement judge. The court also approved the employment of counsel for the official unsecured creditors’ committee.

On September 30, 2026, the bankruptcy court formally appointed Judge Klein to facilitate discussions among the city, City Heights, and the unsecured creditors’ committee. The September 23 minutes stated that the anticipated December confirmation hearing would be rescheduled while negotiations proceeded.

Appointment of a settlement judge is a procedural step, not proof that the creditors have accepted the city’s plan. The settlement terms, if any, would still need to be documented and addressed through the applicable bankruptcy process.

Read: Chronology linking September 23 minutes and September 30 order · Case docket and subsequent filing status

As of October 31, 2026 · Where the public record stands

Cle Elum remains in Chapter 9, with a proposed plan and active settlement process

The latest material docket development located for this update is the September 30 appointment of a settlement judge. Based on the cited public docket summaries, there was no subsequently confirmed repayment plan or completed settlement reflected through October 2026. The city’s eligibility dispute has been decided, but its final debt-adjustment arrangement has not.

What should residents watch next? A written settlement or amended plan; public disclosure of creditor treatment and projected payments; the source and legal availability of funding; any votes required for new taxes; potential asset sales; and the resulting effect on city services, infrastructure, and residents.

These developments also explain why future business and infrastructure projects belong in Cle Elum’s financial conversation. New tax base could contribute to long-term fiscal capacity. But gross construction investment is not the same as taxable assessed value, and new tax receipts are not automatically available to pay a judgment. The separate data center essay and 31-page preliminary economic and fiscal scenario assessment examine that question without treating developer projections as guaranteed revenue.

Read: Latest publicly indexed docket · Claims agent and case documents · Federal Chapter 9 overview