Creditors file objections to Detroit’s bankruptcy

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInPin on PinterestShare on RedditEmail this to someone
Detroit filed for Chapter 9 bankruptcy protection in July.

Detroit filed for Chapter 9 bankruptcy protection in July.

Dozens of creditors, unions and retiree groups Monday objected to Detroit’s eligibility to file for Chapter 9 bankruptcy, setting up a fierce legal battle that will determine whether the city’s bankruptcy case can proceed.

U.S. Bankruptcy Judge Steven Rhodes, who set Monday as a deadline for objections, plans to hold a trial Oct. 23 to hear arguments about whether the city has a right to file for bankruptcy.

The objections, which were widely expected and numbered nearly 100 by 7 p.m. Monday, attacked Detroit’s financial standing, its legal authority to file for bankruptcy and the process leading up to its July 18 filing.

STORY: Costly attorney to monitor fees in Detroit bankruptcy
STORY: Detroit bankruptcy hearing to examine eligibility

Several objectors said the city is not eligible for bankruptcy because Detroit emergency manager Kevyn Orr plans to pursue reduced pension payments during the bankruptcy.

In Chapter 9, eligibility objections often trigger protracted legal fights that can add months to the case. If the judge rules the city is not eligible for bankruptcy, the case would be dismissed, although most bankruptcy experts believe Rhodes will rule the city is eligible.

To qualify for bankruptcy, the city must meet several criteria. For example, the city must prove it is insolvent and must show that it negotiated “in good faith” with its creditors or that it’s no longer practical to negotiate. The city also must prove that it has the state’s authority to file for bankruptcy.

The city’s largest creditors, its two independently controlled pension boards, wereexpected to file a joint objection but had not done so by 7 p.m. Monday.

The objectors included the city’s largest union, the Michigan chapter of the American Federation of State, County & Municipal Employees, which attacked Chapter 9 bankruptcy as unconstitutional and accused Orr of refusing to negotiate in good faith with the city’s creditors.

AFSCME attorneys said Detroit designed an “unconstitutional, unlawfully authorized Chapter 9 proceeding seeking the haven of bankruptcy to illegally attempt to slash pension and other post-employment benefit obligations and cram such reductions down the throats of current and former city employees.”

Bill Nowling, a spokesman for Orr, said last week that the city expects objections and believes it will prevail in its bid to prove the city is eligible.

The UAW, which four years ago helped General Motors Co. and Chrysler emerge from bankruptcy by making labor concessions, filed an objection.

The Retired Detroit Police & Fire Fighters Associationand the Detroit Retired City Employees Association, which collectively represent about 70 percent of the city’s approximately 21,000 retirees, also objected.

Several dozen individual retirees, identifying themselves as interested parties or possible creditors, filed objections using a form letter that argued Detroit didn’t have the state’s authority to file for bankruptcy.

“The city of Detroit has too many assets to be bankrupt,” wrote Detroit retiree and pension holder Olivia Gillon in her objection. “Detroit is no different than hundreds of other American cities that are cash strapped and want to get their hands on retiree pension funds. If the federal court allows our pension fund to be raided, it will open a flood gate for hundreds of other cities.”

Some retirees filed handwritten letters objecting to the city’s filing. Several public figures objected, too, including former Detroit corporation counsel and recent mayoral candidate Krystal Crittendon, the Rev. Charles Williams II, president of the Detroit chapter of the National Action Network, and political consultant Sam Riddle.

Courtesy of USA Today

About Guest Writer