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Detroit to get crucial ruling in bankruptcy case

Detroit Bankruptcy
DETROIT (AP) - A judge was expected to announce Tuesday whether Detroit can come up with a plan to get rid of $18 billion in debt in the largest public bankruptcy in U.S. history, a case that ultimately could crack a shield protecting public pensions and also put the city's extraordinary art collection up for grabs.

Judge Steven Rhodes will declare whether Detroit is eligible to stay in court, more than four months after filing for Chapter 9 protection. It's the most critical decision so far because it could give local officials a green light to scrub the balance sheet and slowly improve the quality of life in a city that has lost more than 1 million residents since 1950.

Rhodes postponed his decision by an hour to give the public more time to get through courthouse security.

"Eligibility means working down a specific checklist and making sure the city has done what it needed to do to be in court. If the city gets its ticket punched, it's game on," said Michael Sweet, a bankruptcy expert who has advised struggling local governments in California.

Rhodes' task at this stage is limited to deciding if Detroit has met certain conditions to be in bankruptcy. A local government must do more than claim it's broke. There must be evidence that Detroit tried to negotiate in "good faith" with creditors or that such talks were simply impossible because of the number of parties and other factors.

During a nine-day trial, unions and pension funds with much to lose in bankruptcy vigorously fought the city on the good-faith requirement, saying a month was not enough time to make deals and avoid the historic filing last summer. Detroit emergency manager Kevyn Orr offered just pennies on every dollar owed to creditors.

If Rhodes finds Detroit isn't eligible for bankruptcy, it likely means the city would have to sit down again with creditors and try to reach an agreement outside of court. If that fails, the city could return and file again for Chapter 9.

But Orr is predicting an "Armageddon-like scenario" if the Chapter 9 petition is rejected Tuesday. He said creditors who have been owed money since July will clog the courts with lawsuits to get anything they can while the city attempts to stay afloat.

"The issue at this point is very narrow. ... I think Detroit will be ruled eligible," Sweet said. "I think the judge will find, given the factors the city and the emergency manager had to deal with, they did the best they could with what they had."

Detroit's largest creditors include two pension funds that are underfunded by $3.5 billion, according to Orr. The Michigan Constitution protects public pensions, but Orr believes bankruptcy law trumps that provision. If the city is found eligible for bankruptcy, pension cuts for 23,000 retirees are possible in the final plan. Most get less than $20,000 a year.

The city's art trove at the Detroit Institute of Arts also could be vulnerable. New York auction house Christie's is working on an appraisal of works that could be worth billions. Orr hasn't signaled a strategy yet, but even creditors are demanding a role in determining whether art could be used to raise money.

Jacqueline Esters, 66, said she's willing to take a hit to her $1,006 monthly pension if it means the city can turn itself around. She retired in 1998 after 30 years with the health department but found another job as a community college teacher.

Esters is concerned about her street. She believes her house might fetch just $30,000 if she put it up for sale, compared to $80,000 a decade ago. Someone broke a window on a vacant home just two doors away, meaning vandals are lurking.

"My idea of bankruptcy is you can start all over again," Esters said. "I don't know how much will happen in the neighborhoods. Until people are held accountable, the city is going to look like a dump."

Orr was appointed emergency manager in March under a Michigan law that allows a governor to send a manager to distressed cities, townships or school districts. A manager has extraordinary powers to reshape local finances without interference from elected officials. But by July, Orr and Gov. Rick Snyder decided bankruptcy was Detroit's best option.

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house nigger December 03 2013 at 1:32 PM

nothing can be done till detroit is cleaned up of the trash that runs the street. and the cruopt law inforcement is delt with , the line has already been crosed detroit . ever since coleman young became mayor your city pockets where left open for him to pick, that was your last warning before the bottom fell out he should been made a example of in his first term but since he was a black man every one turned a blind eye towards him so think on that . an before you say a thing i was born and rasied in detroit myers and schoolcraft , schoolcraft and burt rd , no pride left to work with in tthis city so why try down town is the city an the rest is the bad lands,

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bgatlake December 03 2013 at 12:36 PM

I don't want tax money going to these corrupt cities. Period! You gotta draw the line on these
irresponsible hooligans. Sink or swim. The dems ruin everything they run.

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James Elliott December 03 2013 at 11:10 AM

Bush did it

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antonytaquey December 03 2013 at 11:08 AM

This comment has been mentioned before in other communication outlets but it is still appropriate to remind all Democrats who think the US and state of Michigan Governments that life does not owe them a living under any circumstances. The bankruptcy of Detroit, Michigan is caused by the Democratic Party activists (such as we have in the White House), Democratic Party-Socialist-Communist-dictatorship practices, and their racist/extortions practices have caused the brain drain and wealth drain to take the train out of Michigan. All that is left is the Left, culture-vultures, and a large art collection that I would like to purchase a few works from the City of Detroit. I can take the paintings with me and leave the real estate and buildings to possibly grow marijuana.

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drepke December 03 2013 at 10:40 AM

I was born in Detroit and raised just outside of it. It was once a great city and had the wealtheist middleclass in the country. However, 40 years of Liberal and sometimes racist policies under Mayors like Coleman Young and Kwame Kilpatrick have ruined any hope of it righting it's own ship. Bankrupcy is the only hope, as it was for GM and Chrysler. Let's not forget the secure bondholders of both those companies were forced by the Obama Administtration to take pennies on the dollar of their secure investments.By Feceral law secure investors are suppose to be paidoff first and fully before any other creditors. However, the Obama Adminstered bankrupcy violated that law as it did many other with regards to GM and Chrysler. It allowed GM to offer stock while still owing 65 billion in loans, another federal law violation waived by the Federal Government and they still owe 25 billion in laons to tha American taxpayers. Those will never be paid back because in another violation of federal bankrupcy law they get to write that off 5 billion at a time for the next 5 years. Now talk to me about corporate welfare.

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michellegperry December 03 2013 at 10:34 AM

With the artwork being it's back-up plan, I find it horrid to think of what will become of many of our treasures. There is so much more to work on than has been ignored. Money isn't going to fix Detroit...people and community are what is needed. Until Detroit is seen as an asset itself, with all it's flaws and jewels, we won't move forward, we will just erase some debt. Work on the real problem of Detroit. There is no PRIDE in Detroit anymore. What will it take for residents and businesses alike to scream I AM FROM DETROIT AND I AM TAKING IT BACK!!!! Get off your asses and grow the community. Hold those accountable for good and bad. (Stepping off my high horse now.)

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boowah December 03 2013 at 10:33 AM

There's only two choices: Bankruptcy and recovery or denial of Bankruptcy and death! If the money's not there, nobody gets paid! Too many cities put off going Bankrupt and keep raising taxes until nobody pays! Scranton is trying that now! 56% this year, 65% next year, and 100% the year after!

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bgatlake December 03 2013 at 12:37 PM

and I will bet it has been in dem hands for years

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jcalcione December 03 2013 at 10:28 AM

I recently visited Detroit and the surrounding areas of Dearborn and THOUGHT that Detroit was a beautiful place...most of it. Like ANY BIG CITY in the USA there are good and bad areas. It would be an awful shame if the city had to sell off its' magnificent collection of arts in order to aide in the payments to the creditors..

I know people are blaming the Mayors of past and all that and I am sure that it plays into the mess, BUT you can't discount the fact that the unions had such sweetheart deals and if they were unfunded by 3.3 billion...THAT'S NOT JUST Corruption...You can't pay out more than you take in. We have the exact same issue in Rhode Island and I am sure that others states are also battling this same issue....

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Richard December 03 2013 at 10:15 AM

I see nothing that the city has done to liquidate its assets aside from the obvious art. t just says its broke. Everything should be on the "chopping block" before pensions are abandoned.

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gliverson December 03 2013 at 10:15 AM

You are all getting it wrong here to some degree...... There is ALWAYS a play on words in anything a Left Wing, Socialist Democrat (Progressive Communinst Marxist) says! Recall Obummer, "We will fundamentally change things in America, we will spread the wealth...." What that really means is that we will tax the living daylights out of you and give it to others whom we deem worthy to receive our beneficience! Detroit catered to the excessive union demands in exchange for a free ride and lots of union votes. Now? The few people living and working at real jobs in Detroit cannot pay enough taxes to support the 6 figure pensions doled out. To allow them to openly recognize that such policies cannot and do not owrk long term, so they will NOT be allowed to go bankrupt, taxes will increase yet more, and our tax dollars will again subsidize such evil just as we have been doing for around 5 years now nation wide.

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