bankruptcy

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?

JasonParis / Flickr

Detroit's bankruptcy filing has raised a lot of questions, especially for people who live in the city. It's unlikely the day-to-day lives of Detroiters will change very much under a bankruptcy.

Lyke Thompson is the director of Wayne State University's Center for Urban Studies. He says Detroit's city services are already pretty bad, and that there will be few immediate differences for city residents, but things could get worse before they improve.

Peter Martorano / Flickr

What will bankruptcy mean for Detroit?

There are certainly a lot of unknowns as the city navigates through the largest municipal bankruptcy filing in U.S. history, but we can look to other municipalities that have gone through this process.

Here’s a brief outline of two other major municipal bankruptcy cases in the U.S.:

1) Jefferson County, Alabama

 

Population: 658,931

Filed for Bankruptcy: 2011

User: Brother O'Mara / flickr

Hearing date set for challenge to gay marriage ban

"A federal judge has set an October 1 hearing date for a challenge to Michigan’s ban on gay marriage and adoptions by same-sex couples. A lesbian couple in Hazel Park is seeking the right to marry or jointly adopt the children they are raising together. Michigan Attorney General Bill Schuette says the U.S. Supreme Court has allowed states to continue setting their own rules on marriage, and he is defending the Michigan Constitution," Rick Pluta reports.

Kevyn Orr and union leaders discuss pension benefits

"A group of Detroit pension and union leaders have met in the first of two closed-door meetings with the restructuring team of the city's state-appointed emergency manager. Kevyn Orr wants huge cuts in pension benefits and health insurance to avoid the largest municipal bankruptcy in U.S. history. Some bankruptcy experts say the session could be the tipping point that leads to an unprecedented bankruptcy," the Associated Press reports.

Reinstated law prohibits schools from taking union dues

A Michigan law prohibiting schools from taking payroll deductions for union dues is back on the books. A federal judge erased an injunction on the law after an appeals court struck down her 2012 decision suspending it. The law was approved by the Republican-controlled legislature and signed by Governor Rick Snyder. The appeals court said ending payroll deductions doesn't infringe on a union's right to free speech.

Detroit’s emergency manager has canceled a planned bus tour for city bondholders today.

The bus tour was meant to hammer home that Detroit is in dire shape and simply cannot afford to pay off all its debts.

The Wall Street creditors are in town to talk with Kevyn Orr. They’re trying to work out a deal outside bankruptcy court.

Nancy Kaffer, Columnist at the Detroit Free Press joined us today.

Listen to the full interview above.

During the last year of World War II, as millions died in history’s most sustained orgy of violence, other men quietly and secretly planned what to do after the war was over. They worked out the details of the division of Germany and the administration of Japan even before those countries had been occupied. Doing that in advance was essential.

Historians agree that was a precondition for Europe’s eventual recovery, and Japan’s rebirth as a prosperous democracy.  This advance planning also went a long way to prevent a new world war breaking out in the rubble of the old.

I mention this because I hope somebody is thinking about what to do when Detroit declares bankruptcy, and even more importantly, when that process is over. Planning how the city will begin the process back to some form of prosperity.

User: Brother O'Mara / flickr

Federal judge will hear challenge to gay marriage ban

A federal judge is allowing a legal challenge to Michigan adoption laws and its ban on same-sex marriage to move forward. Judge Bernard Friedman says the decision to strike down DOMA last week left unanswered questions that could be addressed by this case. April DeBoer and Jayne Rowse are raising three children together; they say Michigan law violates the equal protection rights of their children. The judge called a July 10th hearing to chart the next steps in the case.

Legislation to improve legal defense for indigent Michiganders

Governor Rick Snyder signed legislation yesterday that will make changes to the state’s public defense system. The bill will create a commission to set statewide standards to ensure effective legal representation for poor defendants. The commission will also monitor counties to make sure each one is meeting those standards.

Flint EM warns possibility of bankruptcy

Flint's Emergency Manager, Ed Kurtz, warns the city could run out of money if it's forced to pay retirees full health benefits. A federal judge recently ruled Flint has to give retired workers the benefits they were promised. Kurtz says the decision hurts retirees more than it helps and that bankruptcy would mean much bigger cuts for retirees and current workers.

Peter Martorano / Flickr

It's Thursday, which means it’s time for our weekly check-in with Detroit News Business Columnist Daniel Howes.

As the story of Detroit's possible---and many say likely---bankruptcy continues to unfold, we keep hearing that many people are going to feel financial hardship.  And when you look at all the possible parties who will be feeling the pain, it seems that some of the most vulnerable are city retirees.

Daniel Howes joined us in the studio today to discuss what bankruptcy will mean for Detroit residents.

Listen to the full interview above.

It'll be 50 years ago in August when Martin Luther King Jr. gave his now iconic "I have a Dream Speech." But King gave an earlier version of that speech on June 23rd, 1963 in Detroit. We took a look back to the events during that address that some Detroiters say was just as important as the March on Washington.

And, as the first day of summer rears its head, Michigan Radio's sports commentator joined us to remember summers past.

And, we spoke with a Michigan poet who has built his own version of Stonehenge just north of Traverse City.

Also, author and shipwreck explorer Valerie Van Heest joined us to discuss the mystery behind a plane crash that occurred over the Great Lakes 63 years ago.

First on the show, it's Thursday. Time for our weekly check-in with Detroit News Business Columnist Daniel Howes.

As the story of Detroit's possible---and many say likely---bankruptcy continues to unfold, we keep hearing that many people are going to feel financial hardship.  And when you look at all the possible parties who will be feeling the pain, it seems that some of the most vulnerable are city retirees.

Daniel Howes joined us in the studio today to discuss what bankruptcy will mean for Detroit residents.

We didn’t have an early spring this year, but it looks like an early summer. I say that because while it is still technically spring, the authorities are already engaged in what has been a late summer Michigan ritual, digging up a field to look for Jimmy Hoffa.

Usually, it strikes me as strange that this case still gets so much attention, but this year we’ve been so overwhelmed with news from Detroit that we probably need a little escape.

It’s hard to be shocked by anything relating to Detroit’s financial crisis. But frankly, I was, when I read the details of the report Emergency Manager Kevyn Orr gave to the city’s creditors.

For months, we’d been hearing that the city had as much as $14 billion in long-term debt. The real figure is more like twenty billion. No other city in the country pays even twenty percent of its revenue for what they call legacy costs -- debt service and pensions. Detroit pays more than forty percent.

Detroit Institute of Arts
Maia C/Flickr

Michigan Attorney General Bill Schuette has released a legal opinion that says the collection held by the Detroit Institute of Arts cannot be sold if the city goes into bankruptcy.

The opinion was issued in response to a request by Senate Majority Leader Randy Richardville.

The opinion says the assets owned by the Detroit Institute of Art are held in a public trust for the people of Michigan, and cannot be used to pay off the city's debts. Schuette says in the opinion, "In Michigan, we not only appreciate our cultural treasures, we guard them zealously."

Detroit has $15.6 billion dollars in long-term liabilities, and emergency manager Kevyn Orr will need to take some drastic measures to pay those debts.

Kevyn Orr -- who is a bankruptcy attorney and turnaround expert -- is in the middle of negotiating a debt reduction plan with the city's creditors. He has said there are no guarantees the DIA's assets would be off the table in the event of a bankruptcy.

User: Brother O'Mara / flickr

Budget awaits Governor Snyder's signature

State lawmakers passed a budget that would increase funding to local governments and schools.

"Senate Majority Leader Randy Richardville calls it the best budget he’s ever helped pass.  But the budget does not include Snyder’s request to expand Medicaid or increase road funding by more than a billion dollars," Michigan Radio's Jake Neher reports.

Senate voting to protect DIA

The Michigan Senate is expected to vote today on a measure to protect the Detroit Institute of Arts. Detroit's emergency manager Kevyn Orr has warned the Institute's assets could be at risk if the city goes bankrupt. If this bill passes, the same protections would apply to collections in other museums across Michigan.

Michigan gas prices amongst highest in nation

Gasoline prices in Michigan are the second highest in the United States right now. It could be several weeks before there's any relief at the pump.

"Analyst Patrick deHaan of GasBuddy dot com says there are fewer gasoline refineries in the Midwest than other parts of the country, and gasoline commodity traders are also driving up the prices," Michigan Radio's Tracy Samilton reports.

Stateside: What would a Detroit bankruptcy bring?

Dec 5, 2012
GM Renaissance Center in Detroit.
John F. Martin / Creative Commons

As the prospect of a Chapter 9 Bankruptcy looms over Detroit, many are wondering what will become of the city.

We spoke with Forbes.com contributor Micki Maynard and the Detroit News' Daniel Howes about restructuring the city and those who run it.

“It would be very difficult for the image of the city. It would be the largest municipal bankruptcy in the history of the country. It would probably last three years and be very unforgiving to the employees and residents,” said Howes.

Howes insisted that taxpayers would mostly likely have to fund the restructuring of the city.

Michigan State University

The city of Detroit continues to try to find a way out of its fiscal crisis.

A new report led by Michigan State University economist, Eric Scorsone, examines the impact of a bankruptcy on the city – something Governor Snyder, the legislature and the city leaders want to avoid.

Steve Carmody / Michigan Radio

After 40 years in the business, the national bookstore chain Borders has officially called it quits.

(photo by Bridget Bodnar/Michigan Radio)

President Obama congratulated a crowd of Chrysler auto workers today in Toledo for their hard work as he stood surrounded by an assembly line of Jeeps. He stressed the importance of the 2008 bailout of Chrysler and G-M to the rest of the auto industry, including Ford:

(photo by Steve Carmody/Michigan Radio)

Attorneys for Borders will be back in court this week  asking a judge to give the troubled Ann Arbor-based book store chain more time to exit bankruptcy protection.  When Borders filed for bankruptcy protection in February, the hope was the bookstore chain would be able to quickly turn itself around.   That apparently isn’t happening. 

(photo by Steve Carmody/Michigan Radio)

The company handling the liquidation sales at more than 200 Borders bookstores says most of those stores will close by this weekend.  The liquidation sales have already been completed at many of the stores, including one in Ann Arbor. 

Rick Kaye is a spokesman for Hilco Merchant Services, the company handling the liquidation sales.  

Lorna Is / Flickr

The Wall Street Journal is reporting that Borders Group Inc. will move its headquarters from Ann Arbor to the Detroit metro area. The company is currently operating under Chapter 11 bankruptcy. From the Journal:

Borders Group Inc. plans to tell publishers and landlords Wednesday it has achieved major cost savings, including more than $30 million in rent reductions, and that it will move out of its Ann Arbor, Mich., headquarters for cheaper office space in the greater Detroit metro area.

Presenting its business plan to an unsecured creditors committee, predominantly made up of publishers and landlords, Borders also plans to say it has now closed about 50 superstores as part of efforts to emerge from Chapter 11 bankruptcy, according to people familiar with the matter. Altogether, Borders will close 226 by the end of next month, although a handful of additional stores could be closed, depending on negotiations with landlords, the people said.

News organizations around the state were quick to pick up the report:

(photo by Steve Carmody/Michigan Radio)

A federal bankruptcy judge has decided to give Borders Group another 90 days to review leases for its bookstores.   The Ann Arbor-based bookstore change is working to emerge from bankruptcy later this year. Borders is already closing 200 bookstores across the country, including 4 stores in Michigan.   Borders is expected to announce plans to close additional stores and renegotiate leases on about 600 other outlets. 

user santoshkrishnan / creative commons

General Motors is expected to formally announce its first ‘full-year profit’ since 2004 on Thursday. It was just two years ago General Motors had to seek bankruptcy protection.    Now, the automaker is expected to announce a 5 billion dollar profit for 2010.

Aaron Bragman is an automotive analyst with IHS Global Insight.  He gives a big part of the credit to the federal government for helping GM through bankruptcy. 

“I don’t think we’d be in the place where we’re at right now if the government had not intervened and actually funded their bankruptcy.  We’d be in a very different place.”

 Bragman says 2011 might be another good year for GM, because of rising gasoline prices. 

 “Chevy is bringing several small vehicles to market.  The new Spark is on the horizon.  The new (Sonic) is coming this year.   So we’re actually seeing a lot of these small cars coming…and now we’re seeing a market force that may actually drive people to go an buy them.”

Bragman says high gasoline prices may hurt Chrysler, because it doesn’t have as many high- mileage vehicles to offer car buyers.

Update 4:37 p.m.

Independent bookstores are waiting to see what kind of impact Borders’ bankruptcy will have on business. Michigan Radio's Jennifer Guerra spoke with Nicola Rooney, owner Nicola’s Books in Ann Arbor.

Rooney expects business to pick up at her store now that one of the Borders in Ann Arbor is slated to close. She said Borders’ financial problems are not emblematic of the book business in general:

"No, it’s not the death knell of bookstores by any means. They did a lot of things wrong over the years…and at any time there were things they could have done differently that they did not, and this of course from someone who knows maybe two percent of what was really going on inside, because you never know the real story," said Rooney.

Rooney blames Borders's problems on its poor website strategy, and frequent management changes.

Update 12:07 p.m.

Michigan Radio's Jennifer Guerra reports that of the stores slated for closing so far, four are in Michigan:

  • Dearborn
  • Utica
  • Grosse Pointe
  • Ann Arbor - the Arborland location.

Guerra spoke with Ann Arbor resident Jack Love about the bankruptcy:

"I’m sad. They’re nice places to go, pick up a book, look through it, of course Borders has more than just books: coffee, book readings, public gatherings," said Love.

Guerra says Love partly blames himself for Borders’ financial problems - he’s a book fiend who buys most of his books online at Amazon.

Update 11:58 a.m.

The Wall Street Journal's Law Blog has posted a list of the top Borders creditors - Who's Owed What in Borders' Bankruptcy.

Not surprisingly, book publishers top the list. Penguin Putnam Inc. is at the very top. They're owed $41,118,914.

Update 11:33 a.m.

Michigan Radio's Steve Carmody just spoke with Rob James, the president of EXP Realty Advisors. EXP specializes in real estate valuations for companies in bankruptcy.  James told Carmody that "no doubt about it" the Borders store closings will have a ripple effect in the retail industry:

"It's going to put a lot of strain on the shopping center industry and its going to hurt a lot of landlords," said James.

Update 11:07

Here is the list of stores Borders plans to close

Update 11:00 a.m.:

The company has released a list of stores it plans to close. We'll have that list posted shortly.

The Wall Street Journal reports the company has secured a loan that will keep the company going while it goes through bankruptcy reorganization. From the WSJ:

The Ann Arbor, Mich., company also said it has lined up a $505 million loan from GE Capital to fund its operations while in bankruptcy. Access to such a loan is subject to court approval.

In its bankruptcy petition, Borders listed assets of $1.28 billion and liabilities of $1.29 billion as of Dec. 25.

Borders' five largest unsecured creditors are the book publishers Penguin Putnam Inc., Hachette Book Group, Simon & Schuster Inc., Random House and Harper Collins Publishers.

AnnArbor.com has some extensive coverage of the bookseller's bankruptcy filing, including a live blog. Nathan Bomey of AnnArbor.com reports on some of the scenarios that could unfold during the bankruptcy reorganization. They also highlight some of the missteps in Borders history. From AnnArbor.com:

Among the company's biggest mistakes was allowing Amazon to manage its online sales from 2001 to 2008.

“They never really harnessed the power of the Internet,” said David Dykhouse, a manager of Borders’ Arborland store from 2002 to 2007. “As someone once said, the Internet is the comet that killed the dinosaur. I’m afraid Borders is one of those dinosaurs.

8:09 a.m.

Borders Group is filing for Chapter 11 bankruptcy reorganization after a long struggle to stay afloat. Borders had a difficult time keeping up as the book and music businesses changed beneath its feet.

The 40-year-old Ann Arbor company plans to close about 30 percent of its stores, or about 200, over the next few weeks. The company will receive $505 million dollars in so-called debtor-in-possession financing from GE Capital and others to help it reorganize.

Borders has recently delayed payments to its vendors, landlords and other creditors. Big-box bookstores have struggled as more people buy books online, in electronic form or at grocery stores or discounters such as Walmart.

user brewbooks / creative commons

With the impending bankruptcy of Borders Group Inc., we thought we'd give you a quick explanation of the two types of options facing the company.

Chapter 7 Bankruptcy

Also known as "liquidation" or "straight bankruptcy." It sparks an 'everything must go' sale of the company's assets. The company may cease operations after filing Chapter 7 bankruptcy.

The company that owes the money files for Chapter 7 bankruptcy in court. The company's assets are turned over to a bankruptcy trustee who then sells the assets and tries to pay back the company's creditors. In exchange, the company that owes the money is freed from having to pay all of its bills in full (unless some wrongdoing is found).

The details of Chapter 7 rules vary from state to state.

Chapter 11 Bankruptcy

Also known as "reorganization" bankruptcy used by many corporations (like K-Mart and General Motors).

After filing for Chapter 11 bankruptcy, the company that owes money typically keeps running its business and keeps its assets while going through a reorganization process overseen by the court.

A reorganization plan is put forth, and if the majority of creditors accept it, and the court accepts the plan - the company continues operating and repays its creditors under the reorganization plan.

Payment to creditors can come from the sale of assets, repayment from future profits, or from mergers or recapitalization.

Sarah Hulett / Michigan Radio

Dan Akerson, General Motors' CEO, told the Economic Club of Washington D.C. this morning that his company was humbled by its "near-death experience" during its 2009 bankruptcy.

Businesses in Hamtramck, Michigan
Ian Freimuth / creative commons

The city of Hamtramck is ratcheting up the pressure on the state to allow it to file for bankruptcy.

Hamtramck’s city attorney has sent a letter to Governor Granholm urging her to issue an executive order allowing the city to seek federal bankruptcy protection. The letter also says appointing an emergency financial manager would not give the city the tools it needs to correct its financial problems.

The city of Hamtramck says it will run out of money at the end of January, and officials have taken the unprecedented step of asking the state for permission to file for bankruptcy.


Bill Cooper is the city manager of Hamtramck. And he says he’s been a little surprised at the uproar his letter to the state has caused.


"That one little word got a lot of attention," Cooper said, sitting in his city hall office as the phone rang with a call from a reporter.


The word: Bankruptcy.

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