The 6th U.S. Circuit Court of Appeals has agreed to hear an appeal to Detroit’s eligibility for Chapter 9 bankruptcy.
The Cincinnati-based court Friday agreed to accept a direct appeal, which means the case will bypass the U.S. District Court Eastern District of Michigan. The move could mark the case’s first step on the way to the U.S. Supreme Court.
Several major creditors, including the city’s largest union — Michigan Council 25 of the American Federation of State, County and Municipal Employees — and the city’s two pension funds, filed appeals challenging Judge Steven Rhodes’ December order allowing the case to proceed.
Detroit’s bankruptcy will proceed while the appeal, which will not take place on an expedited basis, is being heard.
One of the most contentious issues in the case is whether the city should have promised not to cut pensions as a condition of filing for bankruptcy. The state’s Constitution bars public pension cuts, but Rhodes ruled that pensions are contracts that can be severed under federal bankruptcy law.
To be eligible for bankruptcy, Detroit must prove it is insolvent, obtain the state’s authority and show it has negotiated in good faith with creditors or that it’s not longer possible to do so.
The 6th Circuit’s decision comes as the city Friday is expected to file its proposed bankruptcy restructuring plan, which is likely to included proposed cuts for pensioners.
Courtesy of USA Today