The filing begins a 30- to 90-day period that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer. The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities. [...]One key question in this is what will happen to the pensions that Detroit's city workers earned. Will the precedent set be that the retirement people worked for and planned around can be yanked out from under them after decades?
Detroit's bankruptcy is by far the largest of its kind in U.S. history, in terms of the city's population of about 700,000 and the amount of its debts and liabilities, which Orr has said could be as high as $20 billion. Because of the stakes involved, and the impact on residents statewide, as well as 30,000 current and retired city workers and Detroit's ability to stay in business, the case could be precedent setting in the federal judiciary. It also could set an important trajectory for the way troubled cities nationwide settle their financial difficulties.
The bankruptcy filing, decided on by Kevyn Orr, the emergency manager put into place by Gov. Rick Snyder over the city's elected government, happened in typical sneaky Snyder fashion:
An attorney for the pension funds who was seeking a temporary restraining order in Ingham County to block the historic bankruptcy filing said he felt blindsided because he agreed to delay an emergency hearing by five minutes at the request of attorneys for Snyder.Eclectablog's Chris Savage, though, argues that bankruptcy may be preferable to naked control by an emergency manager, writing that the loss of control by the city's elected government and the prospect of wages and pensions being cut are "exactly what occurs when an EM takes over a government. But you know what does not happen? The bankruptcy judge cannot simply do away with inconvenient elected officials. A bankruptcy judge cannot unilaterally dispose of the municipality’s assets to raise funds."
During those five minutes, he said, attorneys filed the bankruptcy petition in Detroit, which generally results in a stay in all other pending lawsuits involving the city. Ingham County Judge Rosemarie Aquilina later issued a temporary restraining order preventing further actions to cut pension benefits, but said she would have issued one to stop the bankruptcy filing altogether, if given the chance.
Whatever happens, it's a terribly sad chapter in the history of a city that's had a lot of sad chapters, and a frightening time for city residents wondering if their already shattered city services will get worse and for retirees wondering if they'll be able to survive retirement.