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What Will Happen in Detroit Next?


January 9, 2014
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Following the onset of the 2008 crisis, Detroit faced tremendous struggles.

he city was able to hang on economically for some time before finally filing for bankruptcy in 2013. Detroit’s bankruptcy is widely expected to be the largest municipal case in U.S. history, but where does the Detroit case go from here?

Detroit

Bankruptcy law is complicated, so completing a bankruptcy case isn’t as simple as filing the bankruptcy petition. Most significantly, according to USA Today, the city will need to get its creditors behind Detroit’s proposed bankruptcy plan of reorganization. While the hope is to get creditors to agree to the plan, however, that isn’t always the case.

Detroit’s plan could take effect without the approval of all creditors, however, if the city’s bankruptcy attorneys ask Bankruptcy Judge Steven Rhodes to approve it under a “cramdown” scenario. While a complicated procedure, the “cramdown” rules allow a bankruptcy judge to approve a plan of reorganization over the objections of creditors if it is essentially fair, equitable, and nondiscriminatory.

Another thing Detroit needs to be worried about is the possibility of creditor appeals. Several creditors, and including the city’s two pension funds, have filed appeals from adverse rulings by Judge Rhodes. Depending upon how these turn out, they could impact adversely on Detroit’s ability to confirm a plan and to emerge from bankruptcy.

The city’s water department will spur the next big discussion controversy in the bankruptcy case. According to the Detroit News, the meditation on the fate of this department has is to continue in the first week of 2014. There is currently a controversial plan to spin off control of the department to help aid in the restructuring of Detroit’s $18 billion debt. In the near future, Detroit should find out whether the department will be leased, sold or transferred.

This bankruptcy case is far from over, and it will be interesting to see where it goes from here.