What happens after the Detroit bankruptcy ruling

Dec 2, 2013

Tomorrow morning, Federal Bankruptcy Judge Steven Rhodes will announce whether or not Detroit can file for bankruptcy. If, as expected, he does authorize this, it will mean grim times ahead.

The city almost certainly will lose some assets; creditors will get paid only a fraction of what they are owed, and elderly and retired city workers may lose at least some of their pensions.

None of this will be easy, or fun. But we all have to hope that is exactly what the judge does. Otherwise, the city will be in the position of a dying lamb among a flock of turkey buzzards.

The city has close to 100,000 creditors who together are owed probably more than $18 billion. If the judge rules Detroit is ineligible for bankruptcy, then that will take the freeze off all the lawsuits creditors filed against the city before the Motor City asked for bankruptcy protection back in July. 

This would result in something close to chaos, and would be good only for a lot of lawyers. Nobody would win, and the resulting debacle would hurt the entire state and the economic fortunes of people as far away as Grand Rapids, even Escanaba.

Few experts believe Judge Rhodes will turn down the city’s bankruptcy request. But we’ve lived through a number of situations in the last few years in which yesterday’s impossible has become today’s new normal.

Indeed, on more than one occasion during the trial phase of this, the judge showed skepticism about some of the city’s claims. He seemed less than convinced that Detroit negotiated in good faith with the city’s creditors. But even if he feels it didn’t, that doesn’t mean he couldn’t still authorize a bankruptcy filing.

What is clear is that Steven Rhodes knows how momentous a decision he is about to make. Usually judges just hand down their opinions, and leave it to the likes of me to explain them.

But in this case, he intends to discuss his decision in open court at 9 a.m. tomorrow, and then issue a written opinion afterwards. I don’t remember anything like this before, but I think it makes a lot of sense.

We need openness and transparency in government, and often get far too little of it. Judge Rhodes plainly understands people’s need to know what he is doing, and why.

No matter what he does say, we are unlikely to know everything tomorrow. Even if he rules that bankruptcy can go forth, nobody expects him to rule then on what assets can and cannot be sold. Nor is the judge likely to address the thorny issue of pension cuts.

If the city is allowed to file, Emergency Manager Kevyn Orr will then submit a reorganization plan to the judge under which he will propose a way to let Detroit restructure its debt. It’s not clear how long that will take, nor how long the judge will take to approve or reject it, in whole or in part.

What happens tomorrow, to steal a line from Winston Churchill, isn’t the beginning of the end of all this, but rather the end of the beginning. And everyone in this state should know that they have a stake in the best possible outcome for Detroit.

Jack Lessenberry is Michigan Radio’s political analyst. Views expressed in the essays by Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.