News Column

Storm of Objections Raised in Detroit Bankruptcy

August 19, 2013

Creditors and others filed dozens of objections Monday to Detroit's eligibility to file for Chapter 9 bankruptcy, setting up a fierce legal battle that will determine whether the city's bankruptcy case can proceed.

About 30 creditors or interested parties had filed objections as of 1 p.m. Monday is the deadline for eligibility objections, which have been widely expected.

Most of the early objections came from individual city retirees who used a form letter to challenge the city's legal authority to file for bankruptcy. The city's pension boards, the largest creditors in this case, plan to jointly file an objection.

U.S. Bankruptcy Judge Steven Rhodes plans to conduct an eligibility trial on Oct. 23. Objecting parties will get a chance to voice their opinions, call witnesses and share evidence on why the city's bankruptcy case should not be allowed to proceed.

In Chapter 9, eligibility objections often trigger protracted legal fights that can add months to the case. If the judge rules the city is not eligible for bankruptcy, the case would be dismissed, although most bankruptcy experts believe Rhodes will rule the city is eligible.

To qualify for bankruptcy, the city must meet several criteria. For example, the city must prove it is insolvent and must show that it negotiated "in good faith" with its creditors or that it's no longer practical to negotiate. The city must also prove that it has the state's authority to file for bankruptcy.

"To allow an agent of the State of Michigan to take the City of Detroit into Chapter 9 bankruptcy without consent from the duly elected representatives of the City of Detroit, is tantamount to an involuntary bankruptcy, which is not allowed under Chapter 9," said the form letter filed separately by several different Detroit retirees who objected to the bankruptcy.

Bill Nowling, a spokesman for Detroit emergency manager Kevyn Orr, said last week that the city expects objections and believes it will prevail in its bid to prove the city is eligible.

The pension boards plan to argue that Michigan Gov. Rick Snyder didn't have the authority to file without ensuring that retiree pensions would be protected from cuts, said Bruce Babiarz, spokesman for the Police and Fire Retirement System board, in an interview last week.


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Source: Copyright Detroit Free Press (MI) 2013

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