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View Diary: Challenges to Detroit bankruptcy will be decided in bankruptcy court, judge rules (72 comments)

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  •  Unfortunately (5+ / 0-)

    Once the bankruptcy was filed, the state court lost jurisdiction to make decisions about what was going to happen to the pensions, or any other debts the municipality has to pay. The only thing that can continue in state courts absent a federal bankruptcy judge ordering relief from what is known as the automatic stay are claims that the debtor has against other people/entities. That's just the law of bankruptcy. So much as it means that the workers will not have to litigate in federal court, this is the only outcome that conforms to the law.

    •  Yes, altho the federal court is bound by state law (2+ / 0-)

      in its determinations, is it not?

      I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

      by bobdevo on Wed Jul 24, 2013 at 02:50:47 PM PDT

      [ Parent ]

      •  But what is state law in this instance? (0+ / 0-)

        I very much doubt that the BK court is bound by a MI trial court's determination of who is authorized to file the BK petition. So the BK court should have the power to stay that judge's order to withdraw the petition while he decides on his own what MI law says.

        Ok, so I read the polls.

        by andgarden on Wed Jul 24, 2013 at 05:13:47 PM PDT

        [ Parent ]

      •  No (0+ / 0-)

        Bankruptcy court is a federal court. In terms of procedure, it's all about federal law. Even as it relates to substantive matters, the bankruptcy court follows state law only to the extent that it needs to interpret state law in order to properly apply the bankruptcy code. If they are inconsistent, then the bankruptcy law prevails.

        •  Then why can't bankruptcy courts compel (0+ / 0-)

          Florida  residences to be sold to pay creditors when they routinely do that in other states that do not have the homestead exemption?

          Certainly the federal courts have jurisdiction,  but protection of public employee pensions is in the Michigan constitution, so it seems to me that when the federal bankruptcy court applies bankruptcy law to the Michigan state law, it's there in black letters.

          I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

          by bobdevo on Wed Jul 24, 2013 at 06:29:07 PM PDT

          [ Parent ]

          •  Do You Have a Citation to Florida Law that Says (0+ / 0-)

            They can't? Because in Chapter 7 bankruptcy (as opposed to 13), they categorically can. And regularly do, if the debts of the estate can be fully or partially satisfied by the equity in the home less the homestead.

            You're conflating legal issues, btw. The homestead exemption is an entirely different matter that has no bearing on whether a home can be sold in bankruptcy. What the homestead exemption does is provide a certain amount of equity (every state that permits the exemption has a different level) that is guaranteed to be preserved for the debtor.  There is a minimum homestead amount guaranteed under the bankruptcy law, but most states have higher levels established (particularly if a homestead is declared, i.e. recorded, vs. just statutory.)  And of course the bankruptcy courts follow those higher numbers. I can see a situation where the homesteaded value exceeds the value that could be obtained by sale to pay creditors; in that case, it would make zero sense to force the sale of the home itself and I could see a trustee declining to force a sale. (That doesn't, by the way, interfere with the right of any lender holding a valid secured mortgage that has defaulted to get permission from the bankruptcy to take the home in satisfaction of its debts; those rights are not limited by homestead.)

            But if you are truly contending that the home cannot be sold under Florida law just because of the homestead, it would be great if you provide a legal citation for it. Because I would like to know.

            •  In Florida, homestead exemption is "unlimited"... (0+ / 0-)
              "A Florida resident’s home may be completely exempt from distribution under the Bankruptcy Code."  See FLA. CONST. ART. X(a)(1); Fla. Stat. §222.20; 11 U.S.C. §522(p)(1)(A).
              Now, there are some issues - the homeowner must have owned the home for more than 1215 days, and it is limited to homes on lots of 1/2 acre or less within a municipality (e.g., 1/2 acre lot on the ocean in South Beach with a 15,000 sq ft house), or 160 acres (650,000 m²) outside of a municipality.  But this - as well as low state taxes and warm winters - is why a lot of people choose to reside in Florida.

              But that's why I say state law does have effect.  In Ch. 9, a bankruptcy court may not confirm any plan that violates state law, and much as Florida's state law and constitution protect via the homestead exemption, Michigan's laws and constitution protect public employee pensions with respect to already accrued benefits.

              I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

              by bobdevo on Thu Jul 25, 2013 at 10:03:08 AM PDT

              [ Parent ]

              •  Thanks (0+ / 0-)

                Your citation, however, merely confirms my point.

                if you review 11 USC 522 (exemptions in bankruptcy proceedings) you will note that it is that law that says that the bankruptcy court will recognize an exemption in a state's law providing for exemptions to primary residences where the debtor was domiciled for either 730 days pre-filing, or if not for that full time, at least 180 days prior to that 730 day period.  

                In other words, it is the bankruptcy code that is governing--it says that state law will be considered in this context and describes how and when it will be applied.  I do not know if there is a similar provision governing pensions but one cannot assume that just because residences are treated in a manner consistent with state law under the bankruptcy code, pensions are similarly treated.

                •  Perhaps you should look at the rules for Ch 9 (0+ / 0-)

                  which say a plan will be confirmed IF:

                  the debtor is not prohibited by law from taking any action necessary to carry out the plan; ...
                  Michigan law and the Michigan constitution specifically prohibit diminishment of accrued public employee pension benefits by governmental entities. I'm sure there will be some specious arguments made to justify the fuck job, but the constitution of Michigan was amended in 1963 and the pension protection entered specifically to protect public sector employees, because their pensions were not protected federally.

                  Further, since the plan must conform to the "not prohibited by law" section, and reducing already accrued benefits is specifically prohibited, this arguably prevents a cram down.

                  I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

                  by bobdevo on Thu Jul 25, 2013 at 05:10:01 PM PDT

                  [ Parent ]

                  •  Respectfully (0+ / 0-)

                    You're desperately oversimplifying the analysis.  Especially as it relates to the concept of "prohibited by law."

                    But it's OK.  I actually hope you're right for the sake of the Detroit retirees, although unfortunately I don't think you are.

                    •  Admittedly, I'm trying to make the best case (0+ / 0-)

                      but are you saying when the the Michigan Constitution  - Article IX - Section 24: Public pension plans and retirement systems, obligation. says

                      Sec. 24. The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
                      Using shall language, that is not a prohibition by law?

                      I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

                      by bobdevo on Fri Jul 26, 2013 at 02:47:19 AM PDT

                      [ Parent ]

                    •  Respectfully . . . . (0+ / 0-)

                      You were wrong about Florida, and apparently the Attorney General of the State of Michigan agrees with my desperate oversimplification:

                      Michigan Attorney General Bill Schuette said on Saturday he would join Detroit’s federal bankruptcy case to defend retirees who risk losing public pensions, arguing that the state’s constitution protects their benefits.

                      Schuette said Michigan’s constitution is “crystal clear” in stating that pension plans are a contractual obligation that may not be diminished or impaired.

                      I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

                      by bobdevo on Sat Jul 27, 2013 at 11:34:54 AM PDT

                      [ Parent ]

                      •  That's Great (0+ / 0-)

                        But the fact that Michigan wants to have an adversarial procedure in bankruptcy court does not mean more than just that; that they are willing to litigate the question. It does not mean that I'm wrong about what the outcome will be.  If, however, the bankruptcy and higher federal courts say that I am, I'll gladly change my view. Hopefully if I'm right about what the outcome of this will be, you will do the same?

                        •  That depends on whether or not the (0+ / 0-)

                          legal thinking of the bankrupcty court is indeed legal thinking, or, like the decision of SCOTUS in the recent VRA case, pure horse shit.

                          I've gone on the record with why I think they can't reduce the accrued pensions . . . ask you do the same.   Upon what do you base your opinion?

                          I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

                          by bobdevo on Sun Jul 28, 2013 at 04:32:55 PM PDT

                          [ Parent ]

                          •  See this is How I Know (0+ / 0-)

                            You aren't a lawyer.  Even SCOTUS' VRA decision was grounded in law. It was not "pure horse shit." It was grounded in an analysis that gave credence to a legal argument advanced by the parties. And I say that as someone who despises the Shelby County decision and has been working every day with other lawyers on the fight to mitigate its impact.  None of us who actually practice law believe that there was no legal foundation for the outcome; just that it was reached through disingenuous reasoning.  

                            I've already said what my opinion is and why: it is grounded in the Bankruptcy Code as federal law and its primacy when state laws are in conflict with it. I also was careful to say that I hope I am wrong, even if I don't think I am.

                          •  Oh, please . . . . (0+ / 0-)

                            I'm not a lawyer, but I dare say I've written more briefs to federal and state appellate courts than you have -  and probably participated in more trials, as I've been doing it since 1978.

                            The rationale for the VRA decision - that racism is over and no longer a problem in the pre-approval areas - is quite simply horse shit - and dressing it up by calling it disingenuous reasoning based on a legal foundation is putting lip stick on a pig.

                            I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

                            by bobdevo on Mon Jul 29, 2013 at 07:08:33 AM PDT

                            [ Parent ]

                          •  Uh Huh (0+ / 0-)

                            You sound like the standard litigious pro bono person, none of who has ever figured out that they are not a lawyer and therefore really has no foundation to argue with one about what the law actually says.  Thus, it's a waste of time trying to actually have a discussion about the law with you in light of that.

                            Good luck with your next brief.

    •  Ain't over till it's over (1+ / 0-)
      Recommended by:

      Although the supremacy clause gives the BK court jurisdiction over the bankruptcy proceeding, the parties have to follow state law during the course of the bankruptcy. For example, an oil company in bankruptcy can't go dumping gasoline into a lake and hide behind the BK filing to avoid criminal or civil action under state law. And a foreclosure that's already gone to sheriff sale will proceed under state law even if the debtor files for Chapter 13 after the sale.

      Procedurally it's complicated, though. The unions can file an appeal of Rhoades's decision in federal district court, move it thru the Sixth Circuit, and on up to the SCOTUS. But they can't get an injunction to stay the bankruptcy proceeding in the meantime unless Rhoades gives them one. This sua sponte ruling from the bench already gives the answer to that.

      What a rat's nest.

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