Detroit Bankruptcy Case Begins Wednesday

The Detroit bankruptcy is creating problems for city pensions.
Detroit Skyline
Detroit Skyline. Photo Credit: David Herrera

The first hearing for the Detroit bankruptcy case is set for this Wednesday.

According to The Detroit News, U.S. Bankruptcy Court Judge Steven Rhodes said that his court has the power to decide whether or not to “halt a state court lawsuit”. The first hearing is at 10 a.m. on Wednesday, and Judge Rhodes also scheduled a second hearing that will take place on Aug. 2.

However, the first Detroit bankruptcy hearing in the state of Michigan will be July 29. Rosemarie Aquilina will be the judge at the state court, and she believes this should be a state case. The Detroit Free Press reported that Judge Aquilina ruled last week that the city of Detroit violated the state’s constitution. Aquilina said Detroit tampered with pension benefits when they filed for bankruptcy.

According to USA Today, Kevyn Orr, the Detroit emergency manager, is considering making “significant” cuts to the pensions of retired city employees. Orr believes the U.S. bankruptcy law will serve precedent over Michigan’s pension policy. The federal law Orr is referring to allows for pension cuts.

The retired city workers are bitter. According to The New York Times, the former employees feel betrayed, and now city, police, and fire pension boards are suing the state. Stuart Gold, a Detroit-based bankruptcy lawyer at Gold Lange and Majoros PC, told Reuters that if Judge Rhodes sides with the state of Michigan, then pensioners but under bankruptcy laws, the federal court could refuse to hear the appeal, since technically the judgment would not be final.

Detroit is the largest U.S. city to ever file for bankruptcy. Chicago and Los Angeles should follow the Detroit case closely. USA Today noted that Chicago has $19 billion in pension liabilities, and Los Angeles is estimated to have more than $30 billion in pension liabilities.

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