The case would be filed in the U.S. Eastern District Court of Michigan, and hearings could take place in Detroit, or elsewhere in the district, which also includes Kentucky, Ohio and Tennessee.
Can the city be liquidated?
No. "You can't liquidate city hall," Pottow said.
Unlike in Chapter 11 corporate bankruptcy cases, municipalities cannot be forced to sell all their assets to pay off creditors.
However, the city may negotiate a plan that involves selling assets as part of a plan to stabilize the city's finances.
Under this scenario, for example, the city could try to sell city-owned artwork at the Detroit Institute of Arts to help reduce the city's debt, though the DIA would seek to block a sale and Orr has said he wants to avoid it. But creditors could pressure Orr to off-load some assets to reduce their own losses.
Can the city just wipe out all its debt in bankruptcy and start over?
No. Chapter 9 bankruptcy offers no swift solutions. However, it could provide the city with the power to negotiate a debt-reduction deal that could be forced upon bondholders and creditors that previously refused to accept concessions.
Can union contracts be abandoned?
Yes. In fact, Chapter 9 bankruptcy makes it even easier to slash labor deals than in Chapter 11 bankruptcy. In this scenario, Orr could impose new contracts. But the U.S. Supreme Court has ruled this must be a last resort.
Can city retirees lose their pensions?
Probably not. But there's a chance that their monthly pension payments could be reduced. This issue is among the most difficult and uncertain legal questions in Chapter 9 bankruptcy cases.
"You're talking about people who gave their lives to the city, and they're living on this thing. What's going to happen to them? This is a very serious emotional, political, moral issue," Bartell said.
Detroit city unions are arguing that public pensions are protected in bankruptcy because the Michigan Constitution says they "shall be a contractual obligation" that "shall not be diminished or impaired."
But lawyers questioned whether that legal protection would hold up in bankruptcy court. The U.S. Constitution dictates that federal law trumps state law, and federal law allows contracts to be severed in bankruptcy.
Can city retirees lose health care insurance?
Yes. Or benefits could be reduced. According to the U.S. court system website, cities that file for Chapter 9 can reject "retiree benefit plans without going through the usual procedures required in Chapter 11 cases."
What happens to general obligation bondholders?
They can expect a fraction in return for their original investments. In most cases, bond insurers incur these losses.
But they won't agree to a deal that favors other creditors, including union members. Bondholders could push for cuts to pensions.
How would the city's regular business be affected?
In bankruptcy, the city would still have the right to do business as usual. For example, the city could pay police officers and sweep the streets.
However, disruptions could occur if, for example, a city union authorized a strike in response to something that happens during the bankruptcy proceedings, Pottow said.
But if the city dramatically reduces its liabilities during bankruptcy, it could free up cash flow to increase spending on public safety.
Do any city assets get special treatment in bankruptcy?
Yes. Any bonds that are secured by special taxes, such as water and sewer bonds, cannot be stripped of their revenue streams. These bondholders may be protected from cuts.
How would the city pay for bankruptcy proceedings and how much would it cost?
This is still unclear, but the numerous consultants and attorneys involved in the Chapter 9 bankruptcy process could be paid out of the city's general revenue stream. Federal law allows cities to borrow money during bankruptcy, meaning the city could hunt for lenders to help finance its bankruptcy case.
How would the city exit bankruptcy?
The city would propose a reorganization plan that must be approved by more than half of the creditors in each creditor class and by creditors representing at least two-thirds of the total claims. This would likely involve major debt reduction, new union deals and potentially the sale of some assets.
What powers does the bankruptcy judge have?
Although the bankruptcy judge must defer to the debtor on many issues, the judge still maintains the power to approve the reorganization plan, set deadlines during the case and determine how seriously to consider various legal challenges during the case.
How long would the Chapter 9 process take?
Opinions vary widely. Estimates range from anywhere from six months to several years. By all accounts, some creditors will try to slow the process with legal challenges. But if Orr can line up enough support ahead of time, he could convince the judge to expedite the process.
"How long it would take?" Bartell said. "That depends on how much people fight."
(c)2013 the Detroit Free Press
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Distributed by MCT Information Services
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