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Detroit files for bancruptcy

alexd

Administrator
Staff member
Detroit files for Chapter 9 bankruptcy amid staggering debts

By Nathan Bomey


Chapter 9 bankruptcy is poorly understood, in part because it happens so infrequently. Detroit’s case is the largest in the history of the United States.

Here’s what happens next:

• The city filed a Chapter 9 bankruptcy petition today in the U.S. Eastern District Court of Michigan.

• Alice Batchelder, chief judge of the U.S. 6th Circuit Court of Appeals, will appoint a bankruptcy judge to oversee the city’s case.

• The bankruptcy judge will determine where to hold hearings, which could take place in Detroit, Kentucky, Ohio or Tennessee.

• An automatic stay will be issued on most of Detroit’s bills, including unsecured debts, Schneider said today. The city will continue to pay secured creditors, including water and sewer bondholders, who have the right to seize city assets if Detroit fails to pay.

• An automatic stay also will be issued on lawsuits against the city, including outside challenges by pension officials and union members. This means hearings in those lawsuits will be indefinitely delayed. The plaintiffs can recast their arguments inside of bankruptcy court, said Jay Welford, a bankruptcy attorney and partner at Southfield-based Jaffe Raitt Heuer & Weiss.

• The city doesn’t need approval to continue services. For example, the police, fire, water, sewer and public works are completely unaffected by the bankruptcy filing for now and will operate as usual. However, cuts are possible in the future. “You have the ability to use your cash,” Welford said. “You don’t need court approval.”

• Creditors can likely challenge the city’s right to file for bankruptcy by issuing motions to dismiss the case.

• In this case, bondholders and pension officials could accuse the city of failing to negotiate “in good faith,” one of the key criteria allowing the city to file for bankruptcy. The judge would hear arguments on this issue. A ruling could take days, weeks or months — perhaps even a year.

• The city also will have to prove it is insolvent, another stipulation required to file for Chapter 9 bankruptcy. According to the federal bankruptcy code, this requires the city to prove that it is not paying its bills. Emergency Manager Kevyn Orr recently authorized the city to stop making payments on some debts. Bankruptcy experts believe that action was enough to satisfy the insolvency requirement, but creditors may still find wiggle room to argue the city is not insolvent.

• If the judge authorizes the city to move forward with a Chapter 9 bankruptcy case, Orr would propose a plan of reorganization. This could take weeks, months or years. Bankruptcy court allows the city to restructure its operations and its balance sheet. This could involve budget cuts, layoffs, consolidation, the sale of assets, slashing union contracts, selling assets and dramatically reducing city debts, including outstanding bonds.

• The city will attempt to win support for the reorganization plan from creditors, including secured bondholders, general obligation bondholders, unions and pension boards. If the city wins enough support, the plan would be put to a vote — and with enough support, the city could emerge from bankruptcy. Without enough support, the judge could tell the city it must continue to negotiate with creditors.

Orr may eventually pursue a “cram down” procedure, which would require winning support of a minority of creditors and convincing a judge that dissenting creditors are not being reasonable. “We’ll probably get to that because I don’t see how creditors are going to accept what he’s talking about paying them,” Schneider said.

• The length of the case is widely debated. Some experts believe it could be as short as several months. Others say it could take years. Most complex Chapter 9 cases have taken several years.

Contact: Nathan Bomey at 313-223-4743 or nbomey@freepress.com. Follow him on Twitter @http://twitter.com/NathanBomey.
Detroit files for Chapter 9 bankruptcy amid staggering debts

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Chapter 9 bankruptcy is poorly understood, in part because it happens so infrequently. Detroit’s case is the largest in the history of the United States.

Here’s what happens next:

• The city filed a Chapter 9 bankruptcy petition today in the U.S. Eastern District Court of Michigan.

• Alice Batchelder, chief judge of the U.S. 6th Circuit Court of Appeals, will appoint a bankruptcy judge to oversee the city’s case.

• The bankruptcy judge will determine where to hold hearings, which could take place in Detroit, Kentucky, Ohio or Tennessee.

• An automatic stay will be issued on most of Detroit’s bills, including unsecured debts, Schneider said today. The city will continue to pay secured creditors, including water and sewer bondholders, who have the right to seize city assets if Detroit fails to pay.

• An automatic stay also will be issued on lawsuits against the city, including outside challenges by pension officials and union members. This means hearings in those lawsuits will be indefinitely delayed. The plaintiffs can recast their arguments inside of bankruptcy court, said Jay Welford, a bankruptcy attorney and partner at Southfield-based Jaffe Raitt Heuer & Weiss.

• The city doesn’t need approval to continue services. For example, the police, fire, water, sewer and public works are completely unaffected by the bankruptcy filing for now and will operate as usual. However, cuts are possible in the future. “You have the ability to use your cash,” Welford said. “You don’t need court approval.”

• Creditors can likely challenge the city’s right to file for bankruptcy by issuing motions to dismiss the case.

• In this case, bondholders and pension officials could accuse the city of failing to negotiate “in good faith,” one of the key criteria allowing the city to file for bankruptcy. The judge would hear arguments on this issue. A ruling could take days, weeks or months — perhaps even a year.

• The city also will have to prove it is insolvent, another stipulation required to file for Chapter 9 bankruptcy. According to the federal bankruptcy code, this requires the city to prove that it is not paying its bills. Emergency Manager Kevyn Orr recently authorized the city to stop making payments on some debts. Bankruptcy experts believe that action was enough to satisfy the insolvency requirement, but creditors may still find wiggle room to argue the city is not insolvent.

• If the judge authorizes the city to move forward with a Chapter 9 bankruptcy case, Orr would propose a plan of reorganization. This could take weeks, months or years. Bankruptcy court allows the city to restructure its operations and its balance sheet. This could involve budget cuts, layoffs, consolidation, the sale of assets, slashing union contracts, selling assets and dramatically reducing city debts, including outstanding bonds.

• The city will attempt to win support for the reorganization plan from creditors, including secured bondholders, general obligation bondholders, unions and pension boards. If the city wins enough support, the plan would be put to a vote — and with enough support, the city could emerge from bankruptcy. Without enough support, the judge could tell the city it must continue to negotiate with creditors.

Orr may eventually pursue a “cram down” procedure, which would require winning support of a minority of creditors and convincing a judge that dissenting creditors are not being reasonable. “We’ll probably get to that because I don’t see how creditors are going to accept what he’s talking about paying them,” Schneider said.

• The length of the case is widely debated. Some experts believe it could be as short as several months. Others say it could take years. Most complex Chapter 9 cases have taken several years.

Contact: Nathan Bomey at 313-223-4743 or nbomey@freepress.com. Follow him on Twitter @http://twitter.com/NathanBomey.
 
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djglobalkiller

TRIBE Promoter
was there in late may with acheron for the dual indy races.. went urbex-ing? was crazy to see how much of the city is in ruins or abandoned. Really surreal feeling like im in an apocalyptic movie scene.

the people, despite all the city's money woes, we're some of the most hospitable people i've met.

Such a shame compared to what i remember it being as a young kid

they need to move everyone into the core, and flatten the derelict suburbs
 
I'm kind of surprised that it took this long. When I was there in early 2011, even the suburbs were looking in rough shape; huge malls were completely shuttered, lots of bankrupt business and foreclosed houses.

Still there were some great places to visit in the city and the shopping there was quite good, but you didn't have to travel too far to find yourself in a pretty rough or run down neighborhood.
 

Lojack

TRIBE Member
I wonder if Omni Consumer Products will bail them out?
It's disconcerting how much that was parodied in the first two Robocop films has come true (or partially true).

This has been a long time coming for Detroit, a train wreck in slow motion. One article I read today described it as Katrina level destruction over decades instead of hours. Fair enough.

In '82 or '83 I remember driving through Detroit in a van on my way to a Scout Jamboree in Ohio, the I75 was closed and there was a detour through the inner-city. That was the first time I saw occupied houses with parts of their roofs missing, and others in serious states of disrepair. The roads were terrible, street signs missing, garbage everywhere. That was a major wakeup for me.
 
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awwnaw

TRIBE Member
they need to move everyone into the core, and flatten the derelict suburbs
It's the core that is derelict, not the suburbs. The very immediate from Jefferson to the Fisher fwy has been revitalized in an attempt to at least capitalize on any tourism/traffic from conventions at Cobo, events at Hart Plaza and sporting events but that's it. Move beyond that til about 12-13 mile (where the burbs start) and it's boarded up houses and devastation.
 

Chris

Well-Known TRIBEr
•The city's population has declined 63 per cent from its peak, including a 28-per-cent decline since 2000
•Citizens wait an average of 58 minutes for police to respond, and just 8.7 per cent of cases are solved. "The city's police cars, fire trucks and ambulances are so old that breakdowns make it impossible to keep up the fleet or properly carry out their roles."
•Only one-third of the city's ambulances were in service in the first quarter.
•Some 40 per cent of the street lights were dead in the first three months of the year.
•Some 78,000 abandoned structures are creating public safety problems.
•The city has more than $18-billion (U.S.) in financial obligations, and even if it could raise taxes, the people can't afford to pay them.
Neglect, corruption, exodus: What drove Detroit to historic bankruptcy - The Globe and Mail
 

acheron

TRIBE Member
I was reading recently how a Detroit Fire Department station was responding to a call and someone stole the generator for their jaws-of-life. So they can't use them any longer. There are now only four (4) jaws-of-life in the entire Detroit Fire Department. Contrast this to Toronto, where most fire trucks have at least one, sometimes two jaws-of-life on board. The City of Toronto has 83 fire stations. Detroit has 43.
 
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ndrwrld

TRIBE Member
“[W]e refused to throw in the towel and do nothing,” Obama said. “We refused to let Detroit go bankrupt, I bet on American workers, and American ingenuity and three years later that bet is paying off in a big way.”
President Obama, October 13, 2012.;)
just before the election.
 

Chris

Well-Known TRIBEr
^^^^
Im not sure thats a fair comment, wasnt that quote/speach regarding the big 3 auto bail out?
 

praktik

TRIBE Member
This is a real, in-your-face example of the fruits of free market fundamentalism. While certain macro trends came to bear, acutely, on this city over the decades and a certain decline was inevitable from the heady heights of the 1920s - it wasn't inevitable that it had to end this way.

With a different government structure and share of revenues, the worst of this could be curbed.

Its just a shame Detroit had to choose to hit bottom during the zenith of an ideology that would have decried the kind of measures needed to "fix detroit" as blasphemous socialism and "handouts".

Transplant Detroit to a different political context, one where a certain pride of nation doesn't permit any one city to fall so low, and maybe you wouldn't be seeing a bankruptcy this week... A purely man-made disaster, completely preventable - and a scar on the face of market extremism which is now making itself felt in quite a dramatic way, not just in Detroit, but in places like Cleveland and Milawaukee and many other cities left behind in an economy that prides itself to live by the law of the jungle.
 
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coleridge

TRIBE Member
I was reading recently how a Detroit Fire Department station was responding to a call and someone stole the generator for their jaws-of-life. So they can't use them any longer. There are now only four (4) jaws-of-life in the entire Detroit Fire Department. Contrast this to Toronto, where most fire trucks have at least one, sometimes two jaws-of-life on board. The City of Toronto has 83 fire stations. Detroit has 43.
I watched a great documentary called BURN that follows a year in the life of the Detroit fire department. It's available on iTunes and elsewhere. I highly recommend it. Profits go to the Detroit fire department.

I watched it in a theater where 90% of the people there were firefighters. Very eye opening especially when you can gauge the shock based on the reactions of an expert crowd.

Detroit fire fighters are worn out. All of them work multiple jobs as they are paid so poorly. The contrast in fitness between the Toronto fire fighters in the theater and the Detroit fire fighters was shocking. These Detroit guys are in brutal shape as they probably have poor diets and no time to exercise outside of fighting fires. They respond to a ridiculous amount of fires, 90% of them are arson. Fire fighting has become so routine to them that they take big risks without much thought. Combine that with how tired they seem and it's become a recipe for mistakes. Like parking a $750,000 ladder truck on a railway and having it destroyed by an Amtrak train.

The equipment is all falling apart and they have to ration what they have. During the year of filming a girl died in a house because they didn't have a ladder truck available to get her out. It's pretty horrible.
 
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