Detroit Ruled Eligible For Bankruptcy, Pension Cuts

A federal judge has ruled Detroit is eligible to file for Chapter 9 bankruptcy, making it the largest municipality in history to qualify.

Detroit Ruled Eligible For Bankruptcy, Pension Cuts
Wikimedia Commons / Shawn Wilson

A federal judge has ruled the city of Detroit is officially eligible to file for Chapter 9 bankruptcy — making it the largest municipality in history to qualify.

"The move is a critical step, actually, in the city's efforts to pay off debts it's amassed, around $18 billion." (Via Sky News)

U.S. Bankruptcy Judge Stephen Rhodes decided Tuesday Detroit was insolvent, or unable to pay that massive debt. (Via Los Angeles Times)

According to The New York Times, it is now "allowed to search for a way to pay off some portion of its debts and restore essential services to tolerable levels under court supervision."

According to an emergency manager appointed by the state, the goal is to get out from under court protection next year with a formal reorganization plan for the city. (Via Al Jazeera)

The decision also says the pension checks of retirees are like any other contract and can be cut during a bankruptcy proceeding.

In other words, nothing distinguishes pension debts from other debts, even though there is a provision in Michigan's constitution that is meant to protect them. (Via Forbes)

The ruling was surprising because Rhodes had previously hinted he planned to decide on the issue on pension cuts later in the case. 

But the Detroit Free Press notes he changed his mind, and he won't agree to pension cuts unless the city's entire reorganization plan is fair. He said, "Resolving this issue now will likely expedite the resolution of this bankruptcy case."

Rhodes' ruling comes just a few months after Detroit originally filed the bankruptcy case in July. A 140-page written opinion will follow Rhodes' verbal ruling.