Judge Michael McManus of U.S. Bankruptcy Court approved Vallejo's debt-restructuring plan in the Eastern District of California Friday, The Wall Street Journal reported.
"I'm pleased how things turned out and now the city can begin the process of rebuilding," said Marc Levinson, Vallejo's bankruptcy attorney.
The city entered bankruptcy protection in 2008 following three years of budget shortcomings and was $50 million in debt.
Philip Batchelor, Vallejo's interim city manager, said the city will have to stick to a strict five-year budget, which is intended to produce a flat revenue by increasing the city's sales tax by 1 percent and keeping the public workforce at its current level, which is down 50 percent in some sectors.
Vallejo is the second-largest municipal bankruptcy filing in California, following Orange County's bankruptcy filing in 1994.
Other cities are looking the Vallejo situation; on Monday, Central Falls, R.I., filed for Chapter 9 bankruptcy, and Jefferson County, Ala., is currently looking to prevent bankruptcy by restructuring its $3.2 billion debt connected to bonds for a new sewer system.