BIRMINGHAM, Ala. — Alabama's largest county offered a plan Friday to restructure its $3.2 billion sewer debt and, at least for now, put off filing the largest bankruptcy in U.S. history.

Gov. Bob Riley said an attorney for Jefferson County proposed restructuring the bond debt at a lower, fixed rate over a longer term, and Wall Street creditors allowed the county to delay any further interest payments at no cost until Sept. 30.

"The tone of the meeting was positive and constructive, and I remain willing to facilitate further progress towards a solution," Riley said in a statement.

The meeting was held at the Capitol in Montgomery. The county has given the Republican governor authority to oversee the negotiations or pursue a bankruptcy filing.

Creditors agreed to respond next week to the county's proposal for restructuring the debt.

The county had the cash to make a $2 million interest payment that was due Friday, but Commissioner Jim Carns said officials must decide whether to continue making payments indefinitely or file for bankruptcy because its obligations far outstrip revenues from the sewer system.

Carns, who did not attend the meeting, said the county must stop the bleeding.

"It's a matter of whether we can get an agreement to stop it or whether we have to get court protection to stop it," he said.

Jefferson is Alabama's most populous county with about 658,000 residents and includes the state's biggest city, Birmingham.

Running out of options after months of talks with bondholders and insurers, Jefferson County commissioners voted this week to let the governor negotiate directly with creditors. They canceled plans for a public referendum set for Nov. 4 on whether to file for bankruptcy.

A decision not to make the interest payment would place the county in default and put it one step closer to filing bankruptcy over a $3.2 billion bill linked to years of court-ordered sewer improvements and risky credit arrangements.

Such a move would nearly double the previous record for a municipal bankruptcy, set in 1994 when Orange County, Calif., sought protection over $1.64 billion in debts.

John Moorlach, chairman of the board of supervisors in Orange County, said bankruptcy would mean short-term pain for Jefferson County. Industrial recruitment will get tougher for awhile, he said, and bond ratings will suffer.

But a good recovery plan combined with stronger oversight could leave Jefferson County in better shape than before the crisis, Moorlach said in an e-mail interview.

"Chapter 9 will affect your reputation ... but it will only be known by those in the finance industry, historians and those states bordering Alabama trying to attract businesses away," he said. "The residents, if the restructuring is done in a way that diverts current revenue sources, won't notice."

But bankruptcy expert Jack F. Williams said layoffs, tax and sewer rate increases and service reductions all are possible when a city or county seeks Chapter 9 bankruptcy protection.

"It's generally designed to allow an insolvent municipality to arrange its debts. Typically, it's bond debt," said Williams, a professor at Georgia State University and resident scholar with the American Bankruptcy Institute.

Jefferson County got into trouble after it was forced by the courts to undertake a huge upgrade of its sewage system to meet federal water standards and stop raw and partially treated waste from being dumped into streams.

Acting at the suggestion of outside advisers, the county borrowed money for the project on the bond market in a complex and risky series of transactions. When the mortgage crisis hit and banks began tightening up on their lending, the interest rates on the debt ballooned.

The nearly completed sewer project has been under construction since 1996.