VALLEJO, Calif. -- U.S. Bankruptcy Court Chief Judge Michael McManus ruled Friday that Vallejo is eligible to declare Chapter 9 bankruptcy.

In a 52-page ruling, McManus rejected the argument the city acted in bad faith "either in connection with its negotiations with the unions or in connection with the filing of the petition because it rejected the Unions' proposal for the modification of the CBAs (collective bargaining agreements)."

McManus said the unions' contract proposal did not assure the city's solvency and that the city filed the bankruptcy petition in good faith.

Marc Levinson, Vallejo's attorney in the bankruptcy proceedings, said, "The next step is to roll up our sleeves and get to work."

That means negotiating with the police, fire and other unions on their collective bargaining agreements that expire on June 30, 2010, and negotiating with other creditors, Levinson said.

The city filed for bankruptcy May 23, claiming it would be insolvent by the end of the 2007-08 fiscal year ending June 30, 2008. City officials said police, fire and other union contracts consumed nearly 75 percent of the city's general fund budget.

Dean Gloster, attorney for the police, firefighters and electrical workers' unions, said the unions will consider whether they will file an appeal of McManus' ruling.

"The workers never disputed Vallejo is in deep financial trouble. They did dispute whether the city satisfied the eligibility requirements for bankruptcy especially since the city has hundreds of millions of dollars of net assets in excess of its liabilities," Gloster said.

"We don't believe bankruptcy is the best place for Vallejo to resolve its financial problems because it is an expensive and contentious forum," Gloster said.

There is a motion pending in U.S. Bankruptcy Court in Sacramento on the city's motion to reject the collective bargaining agreements, Levinson said, calling it "the next big battle." A status conference is scheduled in bankruptcy court Monday, Levinson said.