Stockton, California, for a time lead the nation in foreclosures. Photo: Getty Images.

(Bloomberg) — California cities may turn to bankruptcy courts to ease pension obligations after a judge ruled the California Public Employees’ Retirement System doesn’t deserve special protection, a decision that may reverberate across the country as municipalities struggle with their finances.

Bankrupt cities can cancel contracts with Calpers because federal law overrules state protections given the pension giant, U.S.Bankruptcy Judge Christopher Klein said last week in a hearing over the municipal bankruptcy of the city of Stockton.

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