Judge Approves Detroit Bankruptcy Plan

A federal judge ruled in favor of the Detroit bankruptcy plan, finalizing a 16 month process in which the city petitioned to file a Chapter 9 bankruptcy.

U.S. Bankruptcy Judge Steven Rhodes ruled that the Motor City’s complete restructuring plan is rational and achievable. Detroit now has legal authority to cut more than $7 billion in unsecured liabilities and put back $1.4 billion into public services over the next 10 years.

The decision allows Detroit to trim roughly 74 percent of its unsecured debt. Additionally, the plan expects probable cost savings via more effective government operations that might increase the city’s reinvestment plan to $1.7 billion.

Rhodes said that Detroit’s settlement with pensioners was a “miraculous” conclusion; he also overruled every objection to the city’s plan.

"This city is insolvent and desperately needs to fix its future," Rhodes said.

Rhodes also stated that Detroit made the correct decision to preserve the Detroit Institute of Arts instead of attempting to sell artwork to settle debts.

Today’s ruling ends the largest municipal bankruptcy in U.S. history; the city of Detroit is expected to officially emerge from bankruptcy within the next few weeks.

Detroit emergency manager Kevyn Orr made a statement regarding Rhodes’ decision:

"With Judge Rhodes's historic decision, Detroit moves further along the path toward financial stability and success as a viable and attractive place to live, work and invest. My team and I are pleased that Judge Rhodes agrees that the Plan is the best way for the City to resolve its financial difficulties and remain on solid financial footing.”

Detroit’s two major financial creditors, Syncora and Financial Guaranty Insurance Co. initially fought the city’s petition, arguing that the filing illegally favored pensioners over other creditors. However, both institutions dropped their objections after reaching settlements with the city.

The remaining creditors supported the plan and pensioners voted to accept the deal over a 60-day balloting process this summer.

Orr’s tenure in Detroit will now end with the conclusion of the city’s bankruptcy filing. General control over the city will return to Mayor Mike Duggan and the City Council.

A Financial Review Commission, staffed by gubernatorial appointees, will oversee the city’s finances over the next decade.

The post Judge Approves Detroit Bankruptcy Plan appeared first on The Bankruptcy Blog.

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