The Detroit Free Press has an article everyone should read. Are you a municipal bondholder? Voter? Worried about collecting a public pension?
A warning Detroit emergency manager Kevyn Orr issued in March could serve as an effective starting point for negotiations Friday with city bondholders and creditors, who will be asked to accept far less than what is owed to them.
There's more:
Under a Chapter 9 bankruptcy, Orr becomes even more powerful. The 10th Amendment of the U.S. Constitution says the federal government can’t interfere with states’ rights — so a federal bankruptcy judge might have to defer to Orr’s recommendations on some issues. Judges in Chapter 11 bankruptcy — the kind that helped revive General Motors and Chrysler — have much more power.
Many important questions:
Can the city be liquidated?
No. “You can’t liquidate city hall,” Pottow said.
Unlike in Chapter 11 corporate bankruptcy cases, municipalities cannot be forced to sell all their assets to pay off creditors.
However, the city may negotiate a plan that involves selling assets as part of a plan to stabilize the city’s finances.
This very important question:
Can city retirees lose their pensions?
Probably not. But there’s a chance that their monthly pension payments could be reduced. This issue is among the most difficult and uncertain legal questions in Chapter 9 bankruptcy cases.
“You’re talking about people who gave their lives to the city, and they’re living on this thing. What’s going to happen to them? This is a very serious emotional, political, moral issue,” Bartell said.
Detroit city unions are arguing that public pensions are protected in bankruptcy because the Michigan Constitution says they “shall be a contractual obligation” that “shall not be diminished or impaired.”
But lawyers questioned whether that legal protection would hold up in bankruptcy court. The U.S. Constitution dictates that federal law trumps state law, and federal law allows contracts to be severed in bankruptcy.
You'll want to read the entire article.
