Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Detroit's Bankruptcy Eligibility Trial Kicks Off
Author: Joel R. Glucksman
Date: November 5, 2013
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The highly publicized trial that will determine Detroit’s eligibility to file the largest municipal bankruptcy in U.S. history kicked off on Oct. 23, with the expected opposition from creditors and labor unions.
Representatives for the city are urging U.S. Bankruptcy Judge Steven Rhodes to approve the city’s petition to file for protection under Chapter 9 of the bankruptcy law, arguing that this is the only way Detroit can avoid a loss of 65 cents of every tax dollar being allocated to debt and other obligations. Should this occur, the city says it would have insufficient funding to maintain the public services that the city’s 700,000 residents rely upon, The Associated Press reported. If Judge Rhodes agrees with the argument, Detroit would be permitted to attempt to restructure roughly $18 billion in debt through municipal bankruptcy proceedings.
However, the list of creditors and pensioners opposing the city’s eligibility is long, and the labor unions argue that the city had failed to negotiate with the creditors in good faith – a key precondition that must be satisfied before a city or county can seek municipal bankruptcy protection. Sharon Levine, who represents Michigan Council 25 of the American Federation of State, County, and Municipal Employees, said that Detroit officials made unreasonable offers over the summer, rather than taking the time to explore all options, USA Today reported.
“Detroit has a lot of problems,” Levine told reporters. “It was the biggest Chapter 9 that was ever filed. If there are huge problems, perhaps we should have taken a little time to consider them.”
The trial will be closely watched by legal analysts, creditors, pension funds, and officials of financially distressed cities that may be contemplating bankruptcy. The proceedings – if permitted to move forward – will also set a landmark precedent for the treatment of pension obligations during municipal bankruptcies.
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