Skip to comments.Uh, oh: Detroitís bankruptcy filing may be rejected
Posted on 11/15/2013 9:46:47 AM PST by SeekAndFind
Back in July, the city of Detroit filed for the largest municipal bankruptcy in United States’ history, with the city owing more than $18 billion in debt and liabilities following decades of purely blue leadership. The city’s appointed financial managers have already gotten to work on digging the city out of the massive hole into which it dug itself over the years, but not without the requisite challenges and lawsuits from unions and pension funds irate about the major losses that are going to be foisted upon everyone involved — and all of the work the city has done so far to save itself could be undone if a federal judge decides that Detroit is actually ineligible for Chapter 9 bankruptcy after all. Via the AP:
After a nine-day trial, Judge Steven Rhodes must decide whether Detroit really qualifies for the court’s help to fix its awful long-term finances — including $18 billion debt. Although they haven’t offered specifics, officials predict a “free-fall crisis” if the city is found ineligible and warn that the improved services, such as those streetlights, could suffer. …
“If the bankruptcy is disallowed, frankly, expect all hell to break loose,” said Anthony Sabino, a lawyer who teaches business law at St. John’s University in New York. “Detroit will be at the mercy of its creditors in individual lawsuits spread amongst federal and state courts. That chaos alone could doom the city.”
He compares it to animals in the wild — “wolves rending the carcass piece by piece.”
Emergency manager Kevyn Orr, the state appointee who now controls Detroit’s checkbook, acknowledges things will get worse if bankruptcy is rejected, but he’s not saying exactly how bad.
“The city would go back to where it was. We can’t go back,” he told a business group Tuesday.
The judge’s decision is expected any day now. The opposing unions in the case essentially tried to argue that the pre-bankruptcy negotiations weren’t really attempted in good faith by Orr and his financial team, who had basically already made up their minds to shoot for bankruptcy — but I imagine it would have been rather difficult to negotiate with groups that are still holding on to attitudes like this:
Ed McNeil, special assistant to the president of the American Federation of State, County & Municipal Employees Council 25, downplays the urgency expressed by Orr’s team.
“Eighteen billion dollars — that’s down the road. You’re not talking about money due today,” McNeil said.
Or it may not.
What’s the judge going to do? Confiscate all the property in the city and hand it over to the employees?
And there lies the entire problem with politicians - Democrats in particular.
Eighteen billion dollars? Don’t worry about it, it’s not due today.
Now there’s a man who knows how to live in the present and not let tomorrow’s problems upset him today.
My knowledge of bankruptcy law is pretty limited but if the city is not allowed to go bankrupt wouldn’t they simply stop making payments until someone sued them into bankruptcy?
Hurray! Detroit is not bankrupt after all! All is well!
“wouldnt they simply stop making payments until someone sued them into bankruptcy?”
It would appear the judge is saying, “come back when you can’t make the payments.” BTW, they have plenty of assets to sell. They haven’t because that would delay filing and they’d lose the money to current debts.
There is no stability in law today and the more powerful can make it up as they go along.
That would be Obama's preferred solution I'm sure. Knowing him, I'd be surprised if he didn't try to do just that by eminent domain and/or executive order.
No bankruptcy means that a tax-payer funded bailout from fedgov is coming.
Hope they like Monopoly money!
Maybe do sell it to the Chinks...swap it for the entire national debt. After that, the place would bankrupt them...win/win!
I believe you but then I would think the Union would want Detroit’s money under court control so they could get a sweet heart deal similar to the GM union scum. If the city isn’t allowed to go bankrupt they control who gets paid and who doesn’t. With the city manager no friend of the union I would think you would see the city pay everything but the Union related debts.
Perhaps I am conflating individual bankruptsy scenarios with whatever it is that happens when a city goes belly up.
Cities/states have taxing ability. I'm sure that they don't want to exercise this ability to the extent needed to generate the funds that they need (political suicide) but they do have that option.
They also can sell city parks, community centers, athletic complexes etc. Probably not an action that most elected officials would want to be a part of, but it would be a way out.
They just need some of Obama’s “stash”. /s :)
RE: Cities/states have taxing ability.
Those able to pay taxes can easily LEAVE the cities for the suburbs, or relocate to a friendlier state. Then what?
And they should sell their assets. But they need a new way to go forward. You still can’t get blood from a stone.
“The problem with bankruptcy law and Rule of Law today is.....
There is no stability in law today and the more powerful can make it up as they go along.”