Judge Rules Detroit Eligible For Historic Chapter 9 Bankruptcy, Says Pensions Can Be Cut

[Purveyor]

The city of Detroit today officially became the largest municipality in U.S. history to enter Chapter 9 bankruptcy after U.S. Bankruptcy Judge Steven Rhodes declared it met the specific legal criteria required to receive protection from its creditors.

The landmark ruling ends more than four months of uncertainty over the fate of the case and sets the stage for a fierce clash over how to slash an estimated $18 billion in debt and long-term liabilities that have hampered Detroit from attacking pervasive blight and violent crime.

“It is indeed a momentous day,” Rhodes said at the end of a 90-minute summary of his ruling. “We have here a judicial finding that this once proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity.”

Rhodes — in a surprise decision this morning — also said he’ll allow pension cuts in Detroit's bankruptcy. Rhodes emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable.

--CLIP
The plan is expected to include controversial cuts to unsecured creditors and asset sales, including a potential spinoff of the water and sewer department and the possible sale of Detroit Institute of Arts property.

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http://www.freep.com/article/20131203/NEWS01/312030084/Judge-rules-Detroit-eligible-historic-Chapter-9-bankruptcy-says-pensions-can-cut

[FarCenter]

1. Detroit eligible for bankruptcy

Detroit — A federal judge has ruled Detroit is eligible to file for the nation’s largest Chapter 9 bankruptcy to help dig out from under $18 billion in debt and that city pension payments can be cut to help make that happen.

U.S. Bankruptcy Judge Steven Rhodes determined the city meets the criteria for bankruptcy, ruling the city is financially insolvent and that the filing was properly authorized. He dismissed challenges to Michigan’s emergency manager law and ruled that pensions are not protected by the state Constitution.

“The case was filed in good faith and should not be dismissed,” Rhodes said.

Rhodes also ruled the city negotiated in good faith with its creditors, a key point of contention in the eligibility fight. The judge was sympathetic to creditors’ complaints that they did not get a reasonable chance to respond to the city’s proposals, but he noted that the sheer number of creditors — more than 100,000 — made it “impracticable” for Detroit to negotiate with them all.

Immediately after the ruling, representatives for American Federation of State, County and Municipal Employees, the city’s largest union, filed a notice of appeal to the Sixth Circuit Court.

From The Detroit News: http://www.detroitnews.com/article/20131203/METRO01/312030049

[Purveyor]

2. This sets a pension precedent that will be felt across this country for cash-strapped gov'ts.

Sad day for the worker, indeed!

[WillyT]

3. K & R !!!