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

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  •  Some aspects of Chapter Nine Municipal (0+ / 0-)

    Bankruptcies:

    With respect to bondholders:

    Different types of bonds receive different treatment in municipal bankruptcy cases. General obligation bonds are treated as general debt in the chapter 9 case. The municipality is not required to make payments of either principal or interest on account of such bonds during the case. The obligations created by general obligation bonds are subject to negotiation and possible restructuring under the plan of adjustment.

    Special revenue bonds, by contrast, will continue to be secured and serviced during the pendency of the chapter 9 case through continuing application and payment of ongoing special revenues. 11 U.S.C. § 928. Holders of special revenue bonds can expect to receive payment on such bonds during the chapter 9 case if special revenues are available.

    It appears general obligation bonds have no special status with respect to creditors generally.

    Public pension employees, however, would seem to enjoy special protection in this case:

    The standards for plan confirmation in chapter 9 cases are a combination of the statutory requirements of 11 U.S.C. § 943(b) and those portions of 11 U.S.C. § 1129 (the chapter 11 confirmation standards) made applicable by 11 U.S.C. § 901(a). Section 943(b) lists seven general conditions required for confirmation of a plan. The court must confirm a plan if the following conditions are met:

        the plan complies with the provisions of title 11 made applicable by sections 103(e) and 901;
        the plan complies with the provisions of chapter 9;
        all amounts to be paid by the debtor or by any person for services or expenses in the case or incident to the plan have been fully disclosed and are reasonable;
        the debtor is not prohibited by law from taking any action necessary to carry out the plan; ...

    Hard to see how the bankruptcy court could confirm a plan which reduces already accrued benefits, as public pension employees are specifically protected under Michigan law and the state constitution.  Seems to me a confirmable plan could negatively impact pensions from here on, and could arguably negate COLA increases.

    I'd delve into the case law - as the devil is in the details - but, as Memphis Slim noted, there is the rent situation .  .

    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 09:00:48 AM PDT

    •  Goddamn lawyers are naive... (0+ / 0-)

      The law does not say what it says. It says what the Courts say it says.

      The unions are lawyers, so they'll fight this until it gets to the Supreme Court. Snyder will appeal the order killing the petition from the trial court, it'll go to the appeals court, whoever loses appeals again. Then it goes to the State Supreme Court.

      They will rule that if the Constitution actually meant to protect pensions from bankruptcy proceedings they would have said flat-out "pensions are protected from bankruptcy." They will do this not because it makes the most sense legally, but because they are elected on a partisan ticket and Snyder's GOP has a 5-2 edge. Or they'll make up some similar BS.

      What they will not do, in any circumstance, is rule that Snyder's most prominent appointee (Kevyn Orr) was wrong when he did the thing that Snyder's administration will be remembered for for generations (Detroit's bankruptcy filing). The bankruptcy filing will stand, and the official law of the land in Michigan forevermore will be that municipal pensions are unsecured debt.

      Hell, you do realize that Snyder appointees, plus crazy-ass Young, alone outvote the Democrats on that Court? They just have to hope one of the other two guys likes one of their rationalizations and they're golden.

      •  The constitution says: (0+ / 0-)
        The accrued financial benefits of each pension plan . . . shall not be diminished or impaired [by the political subdivision]
        It would require a constitutional amendment to get around that.

        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 12:38:56 PM PDT

        [ Parent ]

      •  You need to read closer. It's in the constitution (0+ / 0-)

        of the state of Michigan.  The Supreme Court of Michigan can't change the constitution - it requires a constitutional amendment.:


        Michigan Constitution - 1963 - Article IX - Section 24:Public pension plans and retirement systems, obligation.

        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.

        This amendment was passed when labor was powerful in Michigan - and it was passed specifically to protect public employees, who - unlike private sector pension recipients - are not protected under Federal laws. And it says they shall not be diminished or impaired by the politicql subdivision - in this case the municipality of Detroit.

        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 12:41:21 PM PDT

        [ Parent ]

      •  Michigan constitution (not the statutes) says: (0+ / 0-)
        The accrued financial benefits of each pension plan . . . shall not be diminished or impaired [by the political subdivision]
        It would require a constitutional amendment to get around that.

        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 12:43:26 PM PDT

        [ Parent ]

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