Recent traumas in Jefferson County, Alabama, and Stockton, California, that involve non-general-obligation debt or other forms of “non-debt” debt, have investors concerned about the safety of their alternative securities in the shadow of a possible municipal bankruptcy.

The case of Jefferson County, for example, raised questions about the status of debt issued as warrants. Because the county issued warrants instead of bonds, bondholders objected to its bankruptcy filing on the grounds that the Alabama statute only authorizes municipalities with bond debt to file Chapter 9. And warrants, they argued, aren’t bonds under Alabama law.

But the judge determined that it was not a condition under state law for a municipality to file that had bond debt specifically. It mattered only that the municipality had indebtedness, said Vince Marriott, a Ballard Spahr attorney who specializes in Chapter 9 bankruptcy. The warrants, although they are not bonds, clearly represented indebtedness, he said.

“Whether or not a particular form of indebtedness is a prerequisite to authorization to file a Chapter 9 will be a function of how a particular state statute reads,” Mr. Marriott said. “If a state statute is not conditioned on having a particular type of indebtedness to authorize a filing under Chapter 9, then it won’t really matter what kind of indebtedness a municipality has, so long as it in fact has indebtedness, which presumably it does or it doesn’t need Chapter 9 to begin with.”