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Creditors, retirees fight back against Detroit bankruptcy

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Creditors, retirees fight back against Detroit bankruptcy

Detroit unions and retirees are presenting reasons why Detroit’s unprecedented bankruptcy request should be overruled. Federal Judge Steven Rhodes is holding two-day hearings to determine whether the city is eligible for bankruptcy. The official mini-trial is scheduled for next week. Since 1954, only 63 municipalities have filed for Chapter 9 bankruptcy protection, with 29 cases being dismissed as not eligible.

In July of this year Detroit became the largest US city to ever file for Chapter 9 protection, as decades of sluggish growth, economic and political turmoil and population decline brought the city to its knees. The State of Michigan appointed emergency bankruptcy manager Kevyn Orr to help the city settle nearly $20 billion worth of debt.

By 10 am EST, unions, retirees, pension funds and others began filling the federal courthouse to make the case against Detroit’s bankruptcy case. Lawyers representing unions say pensions are protected by the state’s constitution, whereas Orr has said bankruptcy law take precedence over state law.

Creditors are questioning the constitutionality of Detroit’s Chapter 9 filing, and are appealing to the federal and state constitutions in an effort to block the historic bankruptcy from moving forward. According to attorney Sharon Levine, the Chapter 9 bankruptcy law gives “political cover” to Detroit to pursue pension cuts. Levine represents AFSCME, Detroit’s largest employee union. However, Judge Rhodes said Orr’s petition for bankruptcy hasn’t resulted in payment cuts, and questioned whether Levine’s arguments were premature.

According to retiree committee attorney Claude Montgomery, the bankruptcy must be struck down before Orr can enact pension cuts, which would violate the state constitution’s protection of public pension funds. “The harm is factual,” Montgomery said, appealing to Rhodes as the “keeper of the protection of retirees.”

Judge Rhodes is expected to reach a decision concerning the eligibility of the Chapter 9 filing after the October 23 eligibility hearings. If Rhodes deems the city eligible to file for Chapter 9 protection, Detroit will be free to propose plans to reduce its debt.

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