Deficit-ridden cities that don't dare declare bankruptcy can follow another route to recovery: operating under a court-appointed receiver.

Unlike bankruptcy with its federal code, receivership works under state laws. Forty-eight states have laws providing for municipal receivership in some form, according to James E. Spiotto, a bankruptcy expert at the Chicago-based law firm of Chapman and Cutler. Some states provide for receivership of municipal utilities, others for "virtually any type of municipality," Mr. Spiotto said.

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