Detroit’s Chapter 9 Filing: What it Means

In the aftermath of Detroit’s filing for Chapter 9 bankruptcy last Thursday, many people are wondering what it all means for the city, its residents and its workers. Will city employees be paid? Will the city’s public services continue? How will the city cover its debts? Answers are slowly coming out as the plan for the future of a bankrupt city unfolds.

Detroit Has Army of Bankruptcy Attorneys

The Chapter 9 filing is different from some other kinds of bankruptcy filings in that the city cannot liquidate all its assets to cover its debts; the city must continue to provide municipal services to its residents and keep the lights on. Also, the city has more than 100,000 creditors with debts estimated around $18 billion, a figure difficult to comprehend. To help navigate the morass, Detroit has a legion of bankruptcy attorneys and experts working their way through and hopefully finding solutions. There has been a lot of talk of selling the city’s art collection, an impressive array of works by masters like Rembrandt, Matisse and Cezanne, and estimated at $2.5 billion in worth; of course, pawning off the arts and culture of the city is a difficult pill to swallow for most. Other sources suggest that the city’s municipal services may be up for auction, such as the sewer system. Emergency Manager Kevyn Orr has said that the city will work to emerge from Chapter 9 status by fall 2014.

Five Criteria for Successful Chapter 9 Filing

In order for Detroit’s Chapter 9 status to be approved, the presiding judge needs to see five criteria met:

  • The city has to be a municipality.
  • The city must meet all state law requirements for filing.
  • The city must be insolvent.
  • The city must file a plan to renegotiate its debts.
  • The city must have the agreement of its creditors; or it must show good reason for not having such agreement.

Orr says that he has met these five criteria; the fifth is probably the hardest, particularly dealing with the large number of creditors that Detroit has, but Orr has demonstrated his arguments that he made good faith efforts with creditors willing to meet.

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