The bankruptcy plan for long-beleaguered Detroit to emerge from the largest municipal bankruptcy case ever filed was approved Friday, about 16 months after its initial filing, by US Bankruptcy Judge Steven Rhodes.
Detroit’s exit from Chapter 9 protection will be completed within 180 days, according to reports. The plan included the city ridding itself of nearly three-fourths of all debt it owed to unsecured creditors. Larger financial creditors took haircuts in deals struck earlier in the process as did most labor unions and representatives of retirees seeking to keep their benefits as in tact as possible. Those that continued to voice objections to Rhodes were unable to sway the judge’s belief that the city was indeed insolvent and in desperate need of the restructuring to function going forward.
The complexity of the case, as well as a mountain of objections and court actions from unions and creditors trying to maximize returns rendered Rhodes’ original timetable of a summer conclusion impossible. Still, the case came to resolution in a relatively quicker and much more decisive manner than several Chapter 9 cases filed by California municipalities prior to the Detroit declaration. Now, attorneys, municipal leaders and perhaps some creditors begin the deep-dive analysis on the case, especially in municipalities rumored to be heading toward insolvency. The outcome could have a significant impact nationally because of potential implications for many cities struggling with escalating debt problems tied primarily to retiree benefits such as pensions and health insurance, which were among the core issues in play in the Motor City. Of course, decades of perceived government corruption and an expanding blight that forced well-to-do residents from the city in droves also played significant roles in Detroit’s financial deterioration.
- Brian Shappell, CBA, CICP, NACM staff writer