USA: A U.S. Bankruptcy Court begins hearing arguments to decide if Detroit is really broke

Record ID: 566352

  • Title: USA: A U.S. Bankruptcy Court begins hearing arguments to decide if Detroit is really broke
  • Date: 23rd October 2013
  • Summary: DETROIT, MICHIGAN, UNITED STATES (FILE) (REUTERS) ZOOM OUT FROM HENRY FORD HOSPITAL TO BOARDED UP HOME DRIVING SHOT OF ABANDONED BUILDING MEN WALKING PAST BOARDED UP HOME BOARDED UP HOME WITH SIGN "THIS BUILDING IS BEING WATCHED"
  • Embargoed: 7th November 2013 12:00
  • Keywords:
  • Location: Usa
  • Country: USA
  • Topics: Economic News,Politics
  • Reuters ID: LVANK5IER201T2AL46FWCOEUZT9
  • Story Text: A federal judge began hearing arguments Wednesday (October 23) in Detroit on the largest municipal bankruptcy filing in U.S. history that will ultimately will answer that question.
    For a city saddled with massive debts and fighting to deliver services to its residents, the answer may sound simple. But the decision by U.S. Bankruptcy Judge Steven Rhodes on whether Detroit is eligible to restructure its debts and liabilities under Chapter 9 of the U.S. Bankruptcy Code that covers municipalities will rest on a slew of complicated issues to be addressed over a multi-day hearing.
    Prominent politicians and other public officials are expected to testify.
    The hearing will pit retirees, pension funds and unions trying to preserve retirement benefits for city workers against the city in the fight over bankruptcy -- which will determine how Detroit's emergency manager can try and right the city's strained finances.
    Outside the federal courthouse on Wednesday, about 300 protesters rallied, most of them union members who face cuts to their pension benefits. They carried signs and chanted slogans saying that banks and not people should be made to feel the pain of any payment cuts the city makes.

    "Hey hey, ho ho, bankruptcy has got to go," protesters chanted.

    "It makes me feel as if I'm irrelevant, insignificant and my voice just doesn't matter. So we have to get out and show support for those who have been unjustly treated in this whole bankruptcy scheme," an unidentified protester said.
    That Detroit is struggling is no secret. Whether its massive troubles amount to bankruptcy under federal law is still to be decided.
    More than one-third of the city's residents live below the government poverty line. There are some 78,000 abandoned structures and just 40 percent of the street lights work. The population has shrunk to less than 700,000, from a peak of 1.8 million in 1950, and only 53 percent of property owners paid their 2011 property taxes.
    At the multi-day hearing at the Theodore Levin U.S. Courthouse, Detroit's attorneys are expected to tick off arguments meant to meet the standard to prove the legal requirements for Chapter 9 bankruptcy protection.
    Among the arguments: Detroit had proper authorization to file the case; it is financially insolvent; it negotiated in good faith with its creditors or had so many creditors that such negotiations were not feasible, and it requires bankruptcy protection in order to deal with $18 billion in debt and other liabilities.
    Objectors have argued that Chapter 9 is unconstitutional and that Michigan's constitution protects pensions from being slashed. And unions, pension funds and retirees, which have all filed objections to the bankruptcy, are expected to argue that the city is not insolvent.
    The city filed the case on July 18, and it said about half of its liabilities stem from retirement benefits, including $5.7 billion for healthcare and other obligations, and $3.5 billion involving pensions. How the city restructures its debt may set precedents for other struggling municipalities, bankruptcy experts said.
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