A federal judge ruled that unions could not go to state court to fight Detroit’s Chapter 9 bankruptcy filing, but they could still argue in federal court that the bankruptcy filing was improper and violated Michigan’s constitution (subscription required).
Detroit claims that it is insolvent and unable to pay its bills, with $18 billion in debt – of which $3.5 billion is owed to pensions for 10,000 current city employees and 20,000 retired workers.
Unlike Chapter 11 reorganizations used by private enterprises, there’s a five-part test for Chapter 9 filing (including insolvency, state authorization, good faith and eligibility) – one third of the filings are dismissed because they are declared ineligible.
Under the proposed plan, Detroit’s secured creditors would be paid in full while unsecured creditors such as the pensioners would receive 10 cents on the dollar. Talk about a haircut!
