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Creditors win bid to appeal Alabama county's bankruptcy

(Reuters) - A federal judge has cleared the way for Bank of New York Mellon and other creditors to challenge in court the landmark $4.23 billion bankruptcy by Alabama's Jefferson County.

Federal District Judge Inge Johnson in Birmingham on Monday issued a three-sentence order giving creditors permission to appeal the eligibility status of the county's November 9 bankruptcy, the largest ever by a U.S. local government.

U.S. Bankruptcy Judge Thomas Bennett last month ruled that the county was legally eligible to file for Chapter 9 bankruptcy protection.

Creditors had argued the county was not entitled to bankruptcy status since its debt, including $3.14 billion of sewer system debt at the heart of its crisis, was composed mainly of warrants and included no bonds, as required by Alabama law.

In November, Jefferson County filed for the bankruptcy protection after bargaining for years with creditors to reduce its sewer debt. Four former county commissioners were found guilty in a scandal tied to the sewer financing.

Lawyers in the case were facing off in Bennett's courtroom on Wednesday in the first of three scheduled days of hearings over differences between the cash-starved county and the creditors on how much of the sewer system's monthly revenue goes to debtholders.

It was not immediately possible to know when a decision on the county's bankruptcy status was due.

(Reporting by Michael Connor in Miami; Editing by Maureen Bavdek)

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