Detroit Files Plan in Bankruptcy, 6th Circuit Will Hear Appeals

In December 2013, we reported that a Detroit bankruptcy judge confirmed the city of Detroit was eligible for bankruptcy protection.  On Friday morning, the city filed for court approval a proposed plan alleging to deal with the city’s $18 billion debt burden.  As anticipated, the plan does include 10-30% cuts to pensions and bonds–unsecured bonds as high as 80%.  In addition, the plan includes long-term goals for the city to ensure that it does not find itself in similar financial straits in the future and an allocation of $1.5 billion to improve services and safety in the city, to once again make Detroit an attractive residential and business market.

Appeals to the city’s eligibility to even receive bankruptcy protection continue to be filed, and petitioners have been granted direct access to the 6th Circuit Court of Appeals, bypassing the District Court altogether.  Those facing cuts appeal the city’s bankruptcy on the ground that the Michigan Constitution prohibits impairment of public worker pensions.

Retirees are arguing that their pensions will actually see a 50% cut under the new plan and point out that their health coverage will also be negatively impacted.  At this time, Detroit’s plan is simply a proposal–the details will be negotiated amongst the parties in the coming weeks.  The petitioners have not been granted expedited hearings.