Is Detroit Ready to Take Its Next Step as a Bankrupt City?

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U.S. Bankruptcy Judge Steven Rhodes could decide as early as Tuesday whether to allow Detroit to proceed with its bankruptcy filing, allowing the city to finally begin cutting down its approximately $18 billion in debt and unmet financial obligations.

Detroit first filed for bankruptcy on July 18, but the proceedings have been hung up in court over whether city emergency manager Kevyn Orr negotiated in good faith with pensioners and labor groups over the city’s pension liabilities before filing for Chapter 9. The decision made on December 3 could be appealed and move directly to a district court.

Detroit has about $3.5 billion in unfunded pension liabilities (the exact number is up for debate). These pension obligations are protected under the state’s constitution, but Orr reportedly wants to conduct Detroit’s bankruptcy under the umbrella of federal bankruptcy. This has pensioners concerned that their pensions will be put on the chopping block.

Whether or not the pensions are in real jeopardy is unclear. Michael Cook, a bankruptcy attorney who helped rewrite the Chapter 9 code in the 1970s, told The Detroit News that he thinks “it’s a pretty foregone conclusion” that the city will proceed with bankruptcy.

“The real test is, does the city have a financial problem? If you cut through all of the rhetoric, of course it does. I can’t think of a more eligible city,” he told the publication.

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