Detroit Bankruptcy: Full Speed Ahead

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U.S. Bankruptcy Judge Steven Rhodes

U.S. Judge Steven Rhodes cleared the way for Detroit to continue pursuing Chapter 9 bankruptcy Wednesday by putting challenges made in state court on hold.

The first hearing in what is the largest municipal bankruptcy case in U.S. history saw lawyers representing the city and Emergency Manager Kevyn Orr emerge the clear winners. But this is just the first  skirmish in what will be a long fight.

In essence, what Rhodes did was halt attempts by retired city workers and their unions to use state courts to stop the bankruptcy case from being heard in federal court. Lawyers for the retirees argued that, because the Michigan Constitution protects public pensions, it was illegal for Gov. Rick Snyder to authorize the bankruptcy filing because it could potentially put those pensions in jeopardy.

Ingham Circuit Judge Rosemarie Aquilina ruled last week that the federal action should be put on hold until state courts decided that issue. Michigan Attorney General Bill Schuette appealed that decision, and the state Court of Appeals quickly acted to put a stay on Aquilina’s order.

The issue of state constitutional protections of pensions isn’t going away. Instead, it will be up to Rhodes, instead of the state courts, to decide.

Rhodes also took pains to point out other decisions that will be dealt with down the road. Chief among them will be whether Detroit will actually be able to seek bankruptcy protections that will allow it to reduce debt and restructure its finances. For that to happen, the city must convince Rhodes that its debt is so great bankruptcy is the only viable option.

— Curt Guyette

U.S. Bankruptcy Judge Steven Rhodes

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