Detroit's bankruptcy case in court

Written By Unknown on Rabu, 23 Oktober 2013 | 20.24

23 October 2013 Last updated at 08:40 ET
Erma and Gordon MacDonald look at pension statement

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Erma and Gordon MacDonald: "If they take my pension away, then we'll be in bad shape"

A federal judge will start hearing arguments on Wednesday as to whether the city of Detroit should be granted protection from its creditors.

With $18bn (£11bn) of liabilities Detroit's case is the biggest municipal bankruptcy filing in US history.

Union and pension fund representatives will argue against the bankruptcy filing as they want to preserve payments to former city workers.

They say that city officials have not properly negotiated with creditors.

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Kim Gittleson BBC reporter, Detroit


It's already buzzing here in the early morning cold at the Theodore Levin courthouse in downtown Detroit - the site of the city's bankruptcy eligibility hearings.

In a city where seeing a pedestrian can often feel like a surprise, the noise made by early morning union protestors rings out among the empty buildings. A sign advertises that the complex next to the courthouse is available to let.

Wearing t-shirts that say "hands off my pension" and waving signs that say "bail out people not banks", there's a palpable sense of anger here among retired and current city workers. They feel that the city's emergency manager Kevin Orr has ignored them and lined his pockets in the process.

But the question is whether that anger can translate into convincing legal argument? In order to stop the city's bankruptcy filing, lawyers for these pensioners must convince a judge that Mr Orr has negotiated in bad faith.

Mr Orr says that he's done everything possible to avoid the filing, but that years of declining population growth, financial mismanagement, and ballooning retiree costs have left the city with no choice.

Good faith

According to the unions and pension funds, Detroit's emergency manager, Kevyn Orr, did not hold formal negotiating sessions before filing for bankruptcy.

They are also likely to argue that the city is not bankrupt and has assets that can be sold, including pieces from the Detroit Institute of Arts.

City managers say they have negotiated in good faith and bankruptcy is the only way to manage Detroit's $18bn (£11bn) in debts and liabilities.

Half of the city's liabilities result from payments to retired staff, which includes healthcare and pension obligations.

"There are only so many things they can fight about," said John Pottow, a University of Michigan professor who specializes in bankruptcy law.

"They can fight about the solvency and they can fight about the negotiating in good faith."

Lawyers from both sides will present evidence and call witnesses before the federal bankruptcy judge, Steven Rhodes.

He has allotted 10 days for hearings over the next three weeks, although the hearings could take less time than that.

He will then decide whether Detroit merits protection from its creditors under Chapter 9 of the US bankruptcy code, which would allow the city to reorganise its debts.

In May Mr Orr presented a report on Detroit's financial situation.

It said Detroit's expenditures had exceeded revenues by an average of $100m each year from 2008 to 2012.


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