Federal judge allows Detroit bankruptcy, including pension cuts

Thomas Lifson
Federal Judge Steven Rhodes has ruled that the City of Detroit is eligible for bankruptcy protection, despite the heated opposition of creditors, including "the American Federation of State, County and Municipal Employees, the United Auto Workers, Detroit's two pension funds, the city's public safety unions, retiree associations and a committee created to officially represent retirees during the bankruptcy."

The Detroit Free Press, via USA Today,  also reports:

In a surprise decision Tuesday morning - Rhodes also said he'll 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.

In other words, a long and very expensive negotiation process lies ahead, with Judge Rhodes supervising the balancing of interests of the various creditors.

Joseph Lichterman and Bernie Woodall of Reuters add:

"Nobody should interpret this holding, that pension rights are contract rights, to mean that this court will necessarily confirm any plan of adjustment to impair pensions. It will not casually or lightly exercise the power under federal bankruptcy law to impair pensions," Rhodes said.

He declined to stay the bankruptcy proceedings as potential appeals proceed through the courts. He also turned down an effort to allow any appeals of his ruling to go directly to the 6th Circuit U.S. Court of Appeals. Rhodes declared that motions to appeal the case must first be filed in bankruptcy court. Rhodes previously stayed all state court action in the case.

Detroit's total liabilities total $18.5 billion, making it easily the largest municipal bankruptcy in US history. Of that total, $5.7 billion in liabilities relate to retiree healthcare and another $3.5 billion to pensions themselves, accounting for half of the total.

The ruling represents the beginning, not the end of the story of Detroit's bankruptcy. Brace yourself for stories of retirees thrown out on the street because their pensions will be getting cut.

 

Federal Judge Steven Rhodes has ruled that the City of Detroit is eligible for bankruptcy protection, despite the heated opposition of creditors, including "the American Federation of State, County and Municipal Employees, the United Auto Workers, Detroit's two pension funds, the city's public safety unions, retiree associations and a committee created to officially represent retirees during the bankruptcy."

The Detroit Free Press, via USA Today,  also reports:

In a surprise decision Tuesday morning - Rhodes also said he'll 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.

In other words, a long and very expensive negotiation process lies ahead, with Judge Rhodes supervising the balancing of interests of the various creditors.

Joseph Lichterman and Bernie Woodall of Reuters add:

"Nobody should interpret this holding, that pension rights are contract rights, to mean that this court will necessarily confirm any plan of adjustment to impair pensions. It will not casually or lightly exercise the power under federal bankruptcy law to impair pensions," Rhodes said.

He declined to stay the bankruptcy proceedings as potential appeals proceed through the courts. He also turned down an effort to allow any appeals of his ruling to go directly to the 6th Circuit U.S. Court of Appeals. Rhodes declared that motions to appeal the case must first be filed in bankruptcy court. Rhodes previously stayed all state court action in the case.

Detroit's total liabilities total $18.5 billion, making it easily the largest municipal bankruptcy in US history. Of that total, $5.7 billion in liabilities relate to retiree healthcare and another $3.5 billion to pensions themselves, accounting for half of the total.

The ruling represents the beginning, not the end of the story of Detroit's bankruptcy. Brace yourself for stories of retirees thrown out on the street because their pensions will be getting cut.