The city of Detroit, Mich. has officially filed for bankruptcy protection, according to court documents. It’s the largest municipal bankruptcy in history. USA Today reports that today’s filing starts a 30 to 90 day period during which officials will determine whether Detroit is eligible for Chapter 9 bankruptcy. They will also decide how many claimants will be able to compete for the very limited resources that the city might have to offer as settlement.
Details on Detroit’s bankruptcy released
The bankruptcy filing is an attempt by the city to get protection not only from creditors, but also from unions attempting to renegotiate $18.5 billion in debt as well as other liabilities. The city’s emergency manager Kevyn Orr set forth a plan to restructure Detroit’s debt in an effort to avoid bankruptcy, but he said then that he would move toward bankruptcy protection if negotiations with the cities creditors stalled.
Of course Michigan Gov. Rick Snyder would have to approve the bankruptcy filing in order for it to go forward, and the court documents that have been filed do show a letter of approval from Michigan State Treasurer Andrew Dillon, who wrote that the governor did approve the city’s decision to move forward with bankruptcy.
Hearing scheduled Monday
A hearing is scheduled on Monday in a case filed by city workers and retirees attempting to keep Detroit from filing for bankruptcy. They claim that the governor cannot authorize the filing because it includes plans to reduce pension benefits because the state constitution prohibits state pensions from being cut. Experts speculate that the filing today could be aimed at preventing Monday’s hearing because it automatically stays court proceedings like that one. The stay starts as soon as the filing.
There is a chance that the eligibility determination process could last beyond 90 days if the challenge posed by Detroit’s creditors is significant. Some communities have seen the process go on for a year or even longer.
With 700,000 residents and as much as $20 billion in debts and liabilities, Detroit’s bankruptcy goes far beyond other big municipal bankruptcies in recent years. The size of this case could set precedents for future municipal bankruptcy cases.