What Does Detroit’s Bankruptcy Ruling Mean for Pensioners?

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Detroit’s bankruptcy ruling has come in — and it looks like the city will be able to file for bankruptcy protection, allowing it to cut out a large chunk of its debt — billions, according to the Washington Post. The federal bankruptcy judge ruling also changed precedence on city pension plan payments, meaning Detroit will be able to cut pensions even though Michigan’s constitution protects pensions.

In the ruling summary, Judge Steven Rhodes explained this legal inconsistency by noting that while the state constitution may protect pensions this does “not apply to the federal bankruptcy court,” according to MarketWatch.

“This is the first opinion of its kind where a bankruptcy court has directly expressed the view that the supremacy of U.S. bankruptcy laws trumps state constitutional protections of public pension holders. The implications of that decision are significant not only to Detroit but also potentially to other cities gauging their level of fiscal distress and how to deal with it,” Mark S. Kaufman, senior partner at McKenna, Long & Aldridge, to the Washington Post.

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