CARLSBAD, N.M.—The city of Carlsbad's only school bus contractor has filed for Chapter 11 bankruptcy protection.

The filing will allow Ballard Bus Inc. to keep operating while restructuring and making payments to creditors, the Carlsbad Current-Argus reported (http://bit.ly/TLRBhL).

Owners Harley and Debby Ballard said if they can't find a way to keep the company operational in the next couple of months, they may be forced to close their doors after 42 years in business.

"We have 54 employees, 40 buses and 34 school bus routes," Debby Ballard said. "It has become increasingly difficult to operate."

Part of the problem has been continued cuts in state funding. The bus company's contract with the Carlsbad School District for the 2010-11 school year was $1.1 million. Ballard said the state decreased the contract by $24,500 in March 2010. The contract was further reduced in each of the years that followed.

The Ballards sold their cattle and most of their tractors and farm equipment to help them get through the summer. Ballard said she and her husband had hoped to make their payments and catch up, but they were only able to pay their current fuel bill, bank payment, payroll and payroll taxes with the first contract check they received from the district.

"There was nothing left to pay for parts and other accruing bills," she said. "Now we are not only looking at closing our doors, but we also may lose our home and our ranch. We are too old to start over again."

Carlsbad is growing and all the bus routes are full. The Ballards said that going out of business could also make it hard on working families that rely on the buses to get their children to and from school.

Steve West, president of the Carlsbad school board, said he hopes Ballard Bus can find a way through bankruptcy and continue to operate. However, he said the district is prepared to take over bus service if necessary.

"There are a lot of school districts in New Mexico that are facing the same problem and that have already taken over the bus services," he said, noting that the Carlsbad district would prefer to avoid getting into the bus business.

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Information from: Carlsbad Current-Argus, http://www.currentargus.com/