Detroit bankruptcy
1:03 pm
Wed November 13, 2013

Judge will soon decide whether Detroit will get bankruptcy protection

Today is the last day U.S. Bankruptcy Judge Steven Rhodes will accept documents from all sides of the Detroit bankruptcy case.

Rhodes will then look at all the evidence and decide whether the city of Detroit can reorganize itself under Chapter 9 bankruptcy laws. 

Rhodes has heard a lot. The city's future path will be up to him.

His decision will be based upon a) whether the city truly has no other options to pay its debts, a b) whether the city negotiated in good faith with its creditors prior to saying bankruptcy was the only way.

No one seems to be arguing that the city has a viable way to pay its debts. And Daniel Howes of the Detroit News argues that defining "good faith" negotiations in exceedingly difficult in this case.

That's because Detroit owes money to nearly 100,000 creditors.

From Howes' column:

“A municipality has the obligation to negotiate in good faith with its creditors prior to filing a Chapter 9 case, provided, of course, that it’s practicable for a municipality to do so,” said Theodore Orson, counsel to the state of Rhode Island and the state receiver in the Central Falls bankruptcy. “No one expects a municipality to negotiate with thousands of its creditors. That’s just not possible.”

So Rhodes could decide that it just wasn't practical for the city to try to negotiate a deal with all these creditors. And the city could be allowed to reorganize itself under Chapter 9 bankruptcy.

As a group, around 30,000 city workers - both current and retired - are owed the most money. Pensions and healthcare benefits promised to this group total $9.2 billion, according to the city of Detroit.

The Guardian's Dominic Rushe breaks down how these workers could be deeply affected by the bankruptcy in his story today. Prior to the bankruptcy filing, Detroit's emergency manager Kevyn Orr floated a plan that would give creditors a small fraction of the money the city owed them.

The average Detroit pensioner gets $19,000 a year; a deal that gave 16 cents to the dollar would cut the benefit to $3,040.

Once Rhodes decides whether the city can enter into bankruptcy protection, the details of who will lose what will follow.

A final plan for reorganization is due March 1. Orr has said he'll submit a plan by the end of the year.