7 questions and answers about Detroit's bankruptcy

Jul 19, 2013

Credit Patrick Gibson / Flickr

Detroit filed for Chapter 9 federal bankruptcy protection yesterday.

The federal courts have never seen a municipal bankruptcy filing of this size, so there are a lot of questions out there.

Earlier today, we asked our Facebook followers, "What questions do you have about Detroit's bankruptcy?" 

We've been working hard to answer as many of them as possible. Here's what we have so far, but keep checking back as we gather more information for you.

1. Why now?

Detroit's emergency manager Kevyn Orr said he tried to strike a conciliatory tone with the city's creditors, and that he was hoping for a "consensual process" to resolve disputes out of court -- "...but that didn't happen."

From Gov. Snyder's "27 FAQ's About Detroit's Bankruptcy":

Unfortunately, it became clear that those negotiations wouldn’t be successful for a number of reasons. There was no guarantee all the parties would agree.  There was strong disagreement about the restructuring plan.

It became clear that the fight over what little money Detroit has to pay its creditors was going to court, so a dramatic race to the courthouse ensued.

More from the Detroit News:

As rumors swirled mid-afternoon about an imminent bankruptcy filing, attorneys representing the city’s pension boards filed a motion for a restraining order at 3:37 p.m. — and raced to the Ingham County courthouse in downtown Lansing for an emergency hearing.

By 4:06 p.m., their efforts were moot. The City of Detroit had already filed the largest municipal bankruptcy in U.S. history — five minutes before Ingham County Circuit Judge Rosemarie Aquilina was set to convene a hearing.

2. What's next?

It’s important to remember that Detroit has only “filed” for bankruptcy. They have not entered into bankruptcy just yet.

Orr believes the city, with its massive amount of debt, will meet all the Chapter 9 requirements. But that’s up to a federal bankruptcy judge.

Unions and creditors will likely argue that the city has not negotiated with them “in good faith.” If they can prove that, it's possible that the bankruptcy request could be denied.

You’ll see a lot of posts explaining “What is Chapter 9 bankruptcy?” -- but to really understand it, you should just go straight to the source. The U.S. Courts website does an excellent job breaking it down for you.

Much has been written about the next steps for Detroit, but Detroit Free Press business reporter Nathan Bomey probably has the most comprehensive look at it with his “12 things to expect” post.

3. What happens to public services?

At the press conference that Orr and Gov. Snyder held Friday morning, they stressed that it's “business as usual" for Detroit.

“Going forward... we will pay our bills,” Orr said.

He said priority will be given to those expenses relating to the health, welfare, and safety of Detroiters.

Chapter 9 bankruptcy is designed so a city can continue to function as it moves through the process. But in the future, services could be cut - something that's hard to imagine in a city already struggling to meet basic needs.

Cuts to public services occurred in Jefferson County, Alabama and Stockton, California - two of the country’s biggest bankruptcy proceedings prior to Detroit’s declaration.

But these cities are not Detroit, so there's no telling just how city services will be reorganized. Gov. Snyder says he sees Detroiters "as his customers":

There will be no change in services.  In fact, over time, as the process of reinvestment begins, we expect to provide an improved service, which Detroit’s residents deserve.

4. What's happening to city government?

Under the state's "Local Financial Stability and Choice Act" (Public Act 436), Kevyn Orr will continue to keep his power until either Detroit's finances are set straight, or his term as emergency manager ends.

Emergency managers are appointed for an 18 month term. When the term expires, city government leaders vote whether to retain an emergency manager, or end that person's term.

Orr will continue to oversee major decisions, as he has since he was appointed in March. He is expected to run Detroit during the legal process.

Mayor Dave Bing and the Detroit City Council will still hold office, get paid, and make decisions about day-to-day operations. However, Orr can overrule their decisions and strip their powers if he deems it necessary.

The bankruptcy judge will have almost no power to interfere with how Orr runs day-to-day operations in Detroit.

5. Who are the creditors?

We have that list for you here.

6. What happens to city assets?

That is unclear. There's nothing in Chapter 9 bankruptcy law that compels a city to sell assets in order to meet financial obligations. But it could happen.

The governor's office is largely evading that question for the moment:

Will the city begin selling certain assets, such as Belle Isle or the art in the DIA?

"The city continues to evaluate all legal options to maximize creditor recoveries and to provide funds to reinvest in the city and regain its place among America’s great and vibrant cities."

7. What can people do to help?

These are some non-profits in Detroit that might be looking for extra hands:

  • Gleaners Community Food Bank. If you volunteer for Gleaners you can help sort and pack food. If you donate $50, you would provide 150 meals for people in need. 
  • The Gift of a Helping Hand Charitable Trust. This organization needs volunteers to help with food, toy, and clothing drives.
  • The Mercy Education Project helps girls and women complete their educations. The group needs the most help during the school year. During the day volunteers tutor women working to get their GEDs, and after school tutors help girls one on one with homework.
  • Big Brothers Big Sisters Detroit. Be a big brother or big sister to a young person. Go for a hike, play soccer, help with homework. Essentially, be a role model and older sibling to a kid who might not have anyone to look up to. 
  • Detroit Rescue Mission Ministries. The organization provides food, shelter, and services to individuals who are homeless or dealing with substance addiction. Their volunteer opportunities include serving meals at the food pantry and blight cleanup efforts.

- Julia Field, Melanie Kruvelis, Michelle Nelson, and Lucy Perkins, Michigan Radio Newsroom