The city of Detroit's Chapter 9 bankruptcy filing was approved by Judge Stephen Rhodes Tuesday, officially becoming the largest municipal bankruptcy case in the history of the United States.
Judge Rhodes issued a 90-minute verbal ruling this morning, to be followed by a 140-page written ruling, finding that Detroit's financial woes meet the legal requirements for bankruptcy under a Chapter 9 reorganization, ending months of uncertainty following the initial July 18 filing
“It is indeed a momentous day. We have here a judicial finding that this once proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity,” Judge Rhodes said in a packed courthouse.
In a surprise move, Judge Rhodes ruled that Detroit will be allowed to cut pension payments as part of its debt repayment. Much of the city's financial predicament is due to obligations to retired city workers. The pensions will be allowed to be cut as long as they are deemed "fair and equitable" to other creditors of the Motor City.
A nine-day eligibility trial earlier this month gave the city's creditors, particularly unions and retiree groups, opportunity to argue against the Chapter 9 filing, and against reduced pension obligations in particular. Judge Rhodes found otherwise, and with Michigan Governor Rick Snyder's authorization in place, the historic bankruptcy case will proceed.
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