Unions, Creditors Challenge Detroit's Right to Bankruptcy in Court

Dozens of creditors, unions and retiree groups objected to Detroit’s eligibility to file for Chapter 9 bankruptcy, setting up a fierce legal battle today that will determine whether the city’s bankruptcy case can proceed.
August 20, 2013

Dozens of creditors, unions and retiree groups objected to Detroit’s eligibility to file for Chapter 9 bankruptcy, setting up a fierce legal battle today that will determine whether the city’s bankruptcy case can proceed.

U.S. Bankruptcy Judge Steven Rhodes, who set today as a deadline for objections, plans to hold a trial Oct. 23 to hear arguments about whether the city has a right to file for bankruptcy.

The objections, which were widely expected and numbered nearly 100 by 7 p.m., attacked Detroit’s financial standing, its legal authority to file for bankruptcy and the process leading up to its July 18 filing.

Several objectors said the city is not eligible for bankruptcy because Detroit emergency manager Kevyn Orr plans to pursue reduced pension payments during the bankruptcy.

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.

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