Yesterday, Detroit Mayor Dave Bing said there is “going to be a lot of pain” for people following a judge’s ruling that the city is eligible to fix its finances in bankruptcy court. The city of Detroit officially became the largest municipality in U.S. history Tuesday to enter Chapter 9 bankruptcy after a judge declared it met the specific legal criteria required to receive protection from its creditors.

“It is indeed a momentous day,” U.S. Bankruptcy Judge Steven Rhodes said at the end of a 90-minute summary of his ruling. “We have here a judicial finding that this once-proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity.”

In a surprise decision Tuesday morning, Rhodes also said he will allow pension cuts in Detroit’s bankruptcy. He emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable.

“Resolving this issue now will likely expedite the resolution of this bankruptcy case,” he said.

The judge’s ruling gave Detroit the green light to enter Chapter 9 bankruptcy.

“The court finds that Detroit was and is insolvent,” he said. “The court finds that the city was generally not paying its debts as they became due.”

Rhodes said bankruptcy was a “foregone conclusion for a very long time. Cities often wait longer to file for bankruptcy than they should have, and the city of Detroit was no exception.”

As part of the city’s plan includes controversial cuts to unsecured creditors and asset sales, including a potential spinoff of the water and sewer department and the possible sale of Detroit Institute of Arts property.


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