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Judge speeds up hearing on Detroit's eligibility for bankruptcy
August 27, 2013 / 2:17 PM / 4 years ago

Judge speeds up hearing on Detroit's eligibility for bankruptcy

DETROIT, Aug 27 (Reuters) - The federal judge overseeing Detroit’s bankruptcy is accelerating the already hurried process of determining whether the city is eligible for protection from its creditors.

Judge Steven Rhodes ordered late Monday that the initial oral arguments in the case will begin on Sept. 18, well ahead of the Oct. 23 date he originally scheduled for the start of the trial on the question of eligibility.

Rhodes also said on Monday that he would delay hearing objections to the bankruptcy that center on potential cuts to city employee and retiree pension rights, which unions and retiree groups argue are protected by the Michigan state constitution.

The judge wrote in his order that he “appreciates the extraordinary importance of the pension rights,” but he will not consider arguments about potential cuts to pensions until after he decides whether the city is eligible for bankruptcy.

The eligibility argument will center on whether Detroit is insolvent, whether the city negotiated in good faith with its creditors, or whether there were too many creditors to make negotiations feasible.

The bankruptcy code requires only that Detroit’s emergency manager, Kevyn Orr, prove that the city is insolvent, Rhodes wrote, adding that the city does not need to “prove that any particular plan that it might later propose is confirmable.”

Creditors filed 109 objections to the city’s bankruptcy before the deadline last week. The Sept. 18 hearing will be used to hear arguments on legal issues in the case raised by city labor unions and others, including the constitutionality of Chapter 9 municipal bankruptcy and of the Michigan law that allowed the city to file for bankruptcy.

Arguments objecting to the underlying facts in the case, such as whether the city negotiated with creditors in good faith, will be heard on Oct. 23 as originally planned.

Detroit filed the largest municipal bankruptcy in U.S. history on July 18. Orr has said he wants the city to be out of bankruptcy court by the time his term as emergency manager possibly ends in the fall of 2014.

Monday’s order is the latest sign that Rhodes wants to set an aggressive time table to move the city through bankruptcy court.

“A prompt oral argument on these legal issues will promote just, speedy, and efficient determination of the city’s eligibility to be a debtor” under the bankruptcy code, Rhodes wrote on Monday.

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