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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.

Join the discussion

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linda faye December 03 2013 at 9:44 AM

I lived and worked in Detroit for more that 40 yrs. I receive a pension from the city that I earned for over 26 yrs. This problem is a result of poor management, money hungry lawyers suing the city, citizens not caring for their property, parents who did not raise their children to respect other people's life and property. This trend will continue to other places unless citizens start to say enough is enough. I have seen areas in Detroit that I would have loved to live in but now they are torn and burned. Beautiful homes are totally destroyed. There is still hope if people would just care.

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1 reply
kingkassel linda faye December 03 2013 at 10:19 AM

It really is a shame to see such nice old buildings and homes boarded up, busted open and vandalized. It is too bad Detroit's infrastructure was left in the hands of lawless nitwits unable to stop ruining their own neighborhoods. I hope it gets better.

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bbiggert December 03 2013 at 9:58 AM

Another democractically conrolled and operated city that shows the Democrat model for prosperity is abysmally wrong...

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1 reply
asgjim bbiggert December 03 2013 at 10:21 AM

Congratulation on a post the so prominently displays your ignorance. You clearly know nothing about the financial decline of Detroit. But hey, why let a little thing like the facts and truth get in the way of taking political pot shots.

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1 reply
whatsrightisright asgjim December 03 2013 at 10:31 AM

Once again, tell us whose fault it is?

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begeology December 03 2013 at 10:05 AM

Another Obama and Democrat vision for the future of America. Promise everything and then take it back. Obama will probably say—You can keep your pension, insurance and doctor.

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1 reply
asgjim begeology December 03 2013 at 10:17 AM

This comment only demonstrates how little you know about Detroit, it history and the nature of it financial decline.

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2 replies
whatsrightisright asgjim December 03 2013 at 10:31 AM

So...who do you blame the demise of Detroit on?

The city has been run by democrats and unions for the past 40 years. Not a GOP person in sight.

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bgatlake asgjim December 03 2013 at 12:38 PM

but we do know

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rwinchest December 03 2013 at 10:08 AM

How can any municipality offer raises if there are unfunded pension liabilities without prospects to reduce these unfunded obligations. I don't think the situation is unique to Detroit, or major cities; but it appears applicable to every city and town here in Massachusetts.

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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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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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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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1 reply
bgatlake boowah December 03 2013 at 12:37 PM

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

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madfam004 December 03 2013 at 9:33 AM

Detroit is so bad that not even Native Americans want that land back.

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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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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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