Federal Court Paves Way For Detroit Bankruptcy To Continue

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Nearly immediately after the City of Detroit filed the largest municipal bankruptcy in the history of the United States last Thursday, lawsuits were being filed to attempt to block the distressed Michigan city from going forward with its plans. On Friday a state judge, Judge Rosemarie Aquilina of Ingham County Circuit Court, ruled that the filing violated the state Constitution, which protects the pensions of retired public employees. Detroit’s debt and other liabilities lie somewhere between $18.5 and $20 billion and the city is expected to ask that pensions are reduced in order to address the mountain of debt that they have built up in the last roughly twenty years.

Federal Court Paves Way For Detroit Bankruptcy To Continue

Following this ruling by Judge Aquilina, it was appealed by the state attorney general to the Michigan Court of Appeals, which on Tuesday issued a stay of her order pending their appellate decision. That ruling was looked at in Federal Court today where a large victory came for the city and its plans in the courtroom of U.S. Bankruptcy Judge Steven Rhodes.

Judge clears way for Detroit Bankruptcy

Judge Rhodes made it very clear to those looking to block the bankruptcy that federal court is the only place for bankruptcy filings to be heard and that questions about Detroit’s eligibility to overhaul itself through bankruptcy “are within this court’s exclusive jurisdiction,” adding, “There is no case law that holds otherwise.”

“If these actions are not stopped, the city would be irreparably harmed. These litigants will have due process. They will have their day in court,” Detroit attorney Heather Lennox said during two hours of arguments by the city, pension funds and unions.

While they may be true, Judge Rhodes made it quite clear that if they are to have their day in court it will be in front of him, or at least in federal court.

In addition to this ruling, Judge Rhodes also granted a second motion by the emergency manager that extends protection from litigation to Gov. Rick Snyder of Michigan and other state officials. (Including Kevyn Orr, himself. Many believe his intention when appointed was to listen to no one and simply file for bankruptcy.

Last week, Mr. Snyder accepted the city’s emergency manager’s recommendation and demanded Detroit file for Chapter 9 protection.

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