A municipality in legal limbo: Detroit files for bankruptcy eligibility

For a municipality to be undermined by serious financial trouble, its debts take on an insurmountable nature. With no way to break loose from those debts, its local government could file for bankruptcy eligibility as its saving grace. This is why the city of Detroit decided to file for Chapter 9 bankruptcy petition on July 18.

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The New York Times reveals that the trial over the city’s eligibility for Chapter 9 bankruptcy, feasible or not, provoked varying interpretations of events. On one hand, the lawyers of the financially distressed city claim that unions and retirees are to be blamed for delaying negotiations. On the other hand, unions and retirees believe that the bankruptcy filing was a collaboration of several entities, including Michigan Governor Rick Snyder, to gain and maintain control over the city. Moreover, the unions plead the court to order the disapproval of the bankruptcy as it may reduce retiree benefits.

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As Detroit marches to bankruptcy, its efforts to prove its eligibility for the biggest municipal bankruptcy in US history ended in the Nov. 7 trial. Unfortunately, there was no ruling from the judge on whether Detroit can remain under court protection from creditors who can’t fully challenge the debt restructuring process of the city.

Bloomberg relates that US bankruptcy judge Steven Rhodes will issue a ruling only as soon as Detroit lawyers and their opponents submit their respective legal briefs stating how labor will be potentially affected by his decision. The judge also asked the city and state lawyers to answer allegations against Governor Rick Snyder and emergency manager Kevyn Orr for acting “in bad faith” prior to the filing of the case.

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To pronounce eligibility for bankruptcy, the court needs to see a full proof of the city’s insolvency and acts of good faith when it decided that negotiations with creditors were nothing but futile.

Attorney Evan Granowitz specializes in bankruptcy among other areas. For more information about the subject, visit this Facebook page.