Joel R. Glucksman
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201-896-7095 jglucksman@sh-law.comFirm Insights
Detroit Pension Funds Challenge City's Bankruptcy Eligibility
Author: Joel R. Glucksman
Date: January 10, 2014
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The City of Detroit officially filed for Chapter 9 bankruptcy on July 18, 2013. It hasn’t been smooth sailing. Detroit’s two pension funds recently filed an application in the U.S. 6th Circuit Court of Appeals asking the court to expedite their appeal, which challenges Detroit’s bankruptcy eligibility, according to the Detroit Free Press.
On Dec. 3, the bankruptcy court ruled that Detroit was eligible to file for Chapter 9 bankruptcy protection. However, many creditors still object, and it is clear that the pension fund holders, in particular, are not ready to give up the issue.
“This court should decline the bankruptcy court’s puzzling invitation to delay this appeal, despite finding that its eligibility decision meets the criteria for an immediate direct appeal to this court,” the retirement systems say, in their request for an expedited hearing.
The General Retirement System and Police and Fire Retirement System are concerned that if Detroit’s bankruptcy proceedings move forward, the pension funds for employees will be slashed. According to Reuters, the two funds said that Michigan’s constitution protects pensions from being cut, which is the basis of the appeal. The two organizations also said that allowing this bankruptcy to move forward could set a precedent, leading other U.S. cities to cut pensions as a way to reduce debt.
However, this appeal could be in some trouble, as Bankruptcy Judge Steven Rhodes ruled that the city had met the requirements for being in bankruptcy and that the court needs to discuss the city’s debt adjustment plan without the distraction of any appeals.
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