U.S. CITIES, TOWNS AND COUNTIES THAT HAVE FILED FOR BANKRUPTCYThe city of Detroit filed for Chapter 9 bankruptcy protection in federal court Thursday. It is the largest U.S. city to do so. Cities, towns and counties that have filedbankruptcy since January 2010:
Nancy Kaffer, Stephen Henderson and Matt Helms, Detroit Free Press 8:36 p.m. EDT July 18, 2013
DETROIT The city of Detroit filed for Chapter 9 bankruptcy protection(/article/20130718/NEWS01/307180107/DetroitfilesChapter9bankruptcyamidstaggeringdebts) in federalcourt Thursday, laying the groundwork for a historic effort to bail out a city that is sinking under billions ofdollars in debt and decades of mismanagement, population flight and loss of tax revenue.
The bankruptcy filing makes Detroit the largest city in U.S. history to do so.
The filing begins a 30 to 90day period that will determine whether the city is eligible for Chapter 9 protectionand define how many claimants might compete for the limited settlement resources that Detroit has to offer.
The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.
FULL COVERAGE: Detroit's financial crisis (/article/99999999/NEWS01/120322073&template=theme&theme=DETROIT_FINANCIAL_CRISIS) STORY: Detroit bankruptcy: What will happen next (/story/news/nation/2013/07/18/detroitbankruptcywhatwillhappennext/2556605/)
"The fiscal realities confronting Detroit have been ignored for too long. I'm making this tough decision so the people of Detroit will have the basicservices they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future," said MichiganGov. Rick Snyder. "This is a difficult step, but the only viable option to address a problem that has been six decades in the making."
AUTOMAKERS: Unlikely to be hurt by city's bankruptcy (/story/money/cars/2013/07/18/detriotautomakerscitybankruptcy/2554455/)
Detroit Emergency Manager Kevyn Orr, who in June released a plan to restructure the city's debt and obligations that would leave many creditors withmuch less than they are owed, has warned consistently that if negotiations hit an impasse, he would move quickly to seek bankruptcy protection.
Snyder signed off on the filing in a letter attached to court documents filed Thursday in U.S. Bankruptcy Court in the Eastern District of Michigan. Aspokeswoman for Snyder did not immediately return telephone calls Thursday.
"It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternativethat is available," Snyder said in the letter granting his staterequired approval. "In other words, the City's financial emergency cannot be satisfactorilyrectified in a reasonable period of time absent this filing."
Snyder continued: "I have reached the conclusion that this step is necessary after a thorough review of all the available alternatives, and I authorizethis necessary step as a last resort to return this great City to financial and civic health for its residents and taxpayers. This decision comes in thewake of 60 years of decline for the city, a period in which reality was often ignored."
Orr's spokesman Bill Nowling said, "Pension boards, insurers, it's clear that if you're suing us, your response is 'no.' We still have other creditors wecontinue to have meetings with, other stakeholders who are trying to find a solution here, because they recognize that, at the end of the day, we haveto have a city that can provide basic services to its 700,000 residents."
This week, the city's two pension funds (which have claims to $9.2 billion in unfunded pension and retiree health care liabilities) filed suit in state courtto prevent Orr from slashing retiree benefits as part of a bankruptcy restructuring.
Ambac Assurance Guaranty, which insures some of the city's general obligation bonds, has also objected to Orr's plan to treat those bonds as"unsecured," meaning they're not tied directly to a revenue stream and would receive pennies on the dollar of their value. Ambac, and other creditors,have threatened to file suit.
Detroit Mayor Dave Bing announces that Detroit filed for bankruptcy protection Thursday, July 18, 2013, as part of Detroit Emergency Financial Manager Kevyn Orr's,plan to get the city back on track. (Photo: Romain Blanquart, Detroit Free Press)
A deal with creditors gives the city access to $11 million a month in casino tax revenues that Orr has said is key to maintaining city services whilenegotiations, in or out of bankruptcy court, take their course with other creditors and unions.
Plunkett Cooney bankruptcy lawyer Doug Bernstein, who is not involved in the bankruptcy and is not representing any parties related to it, saidThursday that the filing was critical for the city, given a growing number of legal challenges.
On Monday, an Ingham County Circuit Court judge was scheduled to hold a hearing on the city workers' and retirees' challenge to stop the city fromfiling for bankruptcy protection. The employee groups, and separately the city's two pension funds in another lawsuit, argue that the governor — whomust and has authorized the bankruptcy filing — cannot do so if the filings include plans to reduce pension benefits, because the state's constitutionexplicitly protects public pensions. If the state has such plans, it wasn't immediately presented in the court filing.
Governor Rick Snyder Authorizes Detroit Bankruptcy Fili...
Bernstein said preventing the court hearing Monday is probably a key part of the strategy behind a Chapter 9 petition by the city, because a ruling infavor of the employees could put a halt, at least temporarily, to any moves by Orr and Snyder to proceed with a bankruptcy petition. A bankruptcy filingimmediately stays all such court proceedings.
"The stay kicks in as soon as the filing, whether it's Friday or Monday," Bernstein said before Thursday's filing. "The key is taking advantage of theautomatic stay. Because of the lawsuit filed by the pension funds and the hearings coming up Monday, it became a factor, so to the extent that (Orr)wanted to continue negotiations with creditors, now the city is forced to" file a Chapter 9 petition.
STORY: Detroit manager pitches debt recovery plan to creditors (/story/news/nation/2013/06/14/detroitemergencymanagercreditorsplan/2423855/)
The 30 to 90day eligibility fight could be prolonged beyond that time frame if creditors mount a significant challenge to Detroit's eligibility forbankruptcy. In other communities that have filed for Chapter 9 protection, such fights have extended the process a year or more, including JeffersonCounty, Ala., and Stockton, Calif., two of the largest municipal bankruptcy filings so far in the United States.
Detroit's bankruptcy is by far the largest of its kind in U.S. history, in terms of the city's population of about 700,000 and the amount of its debts andliabilities, which Orr has said could be as high as $20 billion. Because of the stakes involved, and the impact on residents statewide, as well as 30,000current and retired city workers and Detroit's ability to stay in business, the case could be precedent setting in the federal judiciary. It also could set animportant trajectory for the way troubled cities nationwide settle their financial difficulties.
Bernstein noted that Orr has said repeatedly his office would "negotiate with creditors until and unless we find that the negotiations won't bear fruit,with the understanding that the city has a limited amount of time" for those talks.
City Council President Pro Tem Andre Spivey said he understood that negotiations Orr was having with creditors weren't as fruitful as he'd hoped theybe, and that he hopes the bankruptcy process will be relatively quick. But he stressed to residents that they needn't worry about the impact of the filingimmediately.
"City services we provide will not be shut down," Spivey said. "We'll still be providing services, but the challenge is where we're going to get to as wego through the bankruptcy process."
The city has lost more than half of its population over the last 60 years. In 1950, the city was the fifthlargest city in the country with a population ofaround 1.8 million. Today its population is estimated at just under 700,000.
