Papers seeking Chapter 9 bankruptcy protection could be filed in court as soon as Tuesday, officials said.
The ski resort is not involved, but the town faces a $43 million court judgment over a breach of contract dispute with a developer after the town backed out of a hotel and airport deal. That alone is more than twice the town's annual budget of $18 million.
Town officials will ask the bankruptcy court to approve an affordable payment plan to creditors. The city of more than 8,000 people about 300 miles north of Los Angeles also is dealing with a $2.8 million deficit.
While the city is under Chapter 9 protection, Mammoth Lakes will remain open for business and vital services will not be affected.
This is the second local government in California to recently make the decision to file for bankruptcy. Last week, Stockton became the largest city in the U.S. to file for bankruptcy after being unable to restructure its debt.
The Associated Press contributed to this report.