Joel R. Glucksman
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201-896-7095 jglucksman@sh-law.comFirm Insights
Detroit Files for Chapter 9 Municipal Bankruptcy
Author: Joel R. Glucksman
Date: July 23, 2013
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After months of closed-door negotiations and speculation, the city of Detroit officially filed for Chapter 9 municipal bankruptcy, making it the largest municipal bankruptcy in U.S. history.
The city, which is facing billions of dollars in debt due to decades of mismanagement, high unemployment, and tax revenue losses, failed to reach an accord over the recent proposals put forth by Detroit’s appointed emergency manager Kevyn Orr. Orr had warned that if creditors and lawmakers could not reach an agreement, there would be no alternative other than to seek bankruptcy law protection.
Now that the city has officially filed proceedings, the 30-to-90-day period will commence during which time the court will determine the city’s eligibility for Chapter 9 bankruptcy and provide guidance on how many creditors may compete for the city’s limited resources. Currently, Detroit is carrying $18.5 billion in debt and liabilities.
After signing off on the filing with the U.S. Bankruptcy Court in the Eastern District of Michigan, Gov. Rick Snyder expressed his disappointment in the path the city has been forced to take, but noted that it was the only remaining course of action.
“The fiscal realities confronting Detroit have been ignored for too long,” said Snyder. “I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future. This is a difficult step, but the only viable option to address a problem that has been six decades in the making.”
The proceedings are expected to be long and costly, and analysts project that creditors will face huge losses due to the city’s depleted resources. In addition to the more than 100,000 creditors seeking recompense from the city that was once the cradle of the U.S. auto industry, retiree and health benefits for thousands of unionized city workers are also in jeopardy.
Detroit’s Bankruptcy has also brought to light some very interesting scenarios to help pay back creditors. Click the following link to read my follow up piece, “PSST! Hey Buddy. Wanna Buy a Picasso?”
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