Judge: Detroit Can Go Through With Chapter 9 Bankruptcy

Detroit can dump billions of dollars worth of debt in the largest municipal bankruptcy in U.S. history, a federal judge ruled today.

Judge Steven Rhodes said that the city met federal conditions to stay in bankruptcy court to untangle its $18 billion in liabilities. “This once proud and prosperous city can’t pay its debts. It’s insolvent. It’s eligible for bankruptcy,” Rhodes said.

Before the city filed for bankruptcy in July, almost 40 cents on every dollar went to paying off debt; the city claims that without restructuring that figure could rise to 65 cents on the dollar.

Rhodes ruled that Michigan’s constitutional protections for public pensions, which dictate that they “shall not be diminished or impaired,” did not completely bar doing so in a bankruptcy. Pensions, he ruled, could be cut like any other contract, though he warned that he wouldn’t automatically approve any pension cuts the city puts forth.

A large portion of the bankruptcy hearings dealt with whether the city had negotiated in good-faith with its creditors before it filed for bankruptcy. Unions and pension funds contended that the city and its emergency manager, bankruptcy lawyer Kevyn Orr,  did not conduct such talks.

Minutes after the ruling, Sharon Levine, attorney for the American Federation of State, County and Municipal Employees, the city’s largest union, pledged to appeal the decision.

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