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Cypen & Cypen

DECEMBER 3, 2013

Stephen H. Cypen, Esq., Editor


Detroit is eligible to shed billions in debt in the largest public bankruptcy in the United States, a federal judge has ruled, according to the New York Times. 
The judge also found that public pensions could be reduced during reorganization, despite a provision in Michigan’s Constitution. The judge said the city met every test of insolvency, including failing to pay its debts and being unable to provide a minimum level of basic services to its 680,000 residents. Appeals were expected to be filed quickly, but it is unclear what portions of the judge’s ruling may be appealed. 
In his ruling, the judge turned aside objections from unions, pension funds and retirees, who, like other creditors, could lose under any plan to solve $18 billion in long-term liabilities, including $3.5 billion in unfunded pension obligations. He also rejected arguments by unions and other opponents that the bankruptcy filing was the result of secret and unconstitutional decisions made by Gov. Rick Snyder of Michigan, who approved the filing in July, and others.
Finally, the judge also rejected the notion that the city should not be eligible for Chapter 9 because the filing was a foregone conclusion. It was impractical for the city to negotiate concessions from creditors before commencing the filing.  The opera ain’t over … .

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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