Q & A: The basics of Detroit's Chapter 9 bankruptcy filing

DETROIT (WXYZ) - Municipal bankruptcy is uncharted territory for Detroit, and it is complicated.

7 Action News spoke with attorney and bankruptcy expert Stewart Gold, who walked us through some of the basics:

7 Action News: Lots of people are worried about losing some of the city's jewels like the Detroit Institute of Arts and Belle Isle. What will happen to them?

Gold: The bankruptcy judge and creditors cannot force the sale of any assets such as the artwork at the Detroit Institute of Arts or Belle Isle. However, specifically assigned assets, such as revenue from casinos, can be collected by creditors who have already been pledged those revenue sources.

7 Action News: What about city vendors, businesses that do work for the city?

Gold: All vendors are on hold for payment. That also includes anyone who is owed a tax refund. That's on hold. The city does not have to pay most unsecured debts, such as any vendors supplying anything from pencils to gasoline—this means, anyone who does business with the city and is owed money, will not get paid.

7 Action News: What about city services, what happens?

Gold: City services will continue as usual, and for now are not affected by the bankruptcy filing. But this may change as the bankruptcy continues, and cuts could be made to services such as public safety or trash pick-up.

7 Action News: The city is sued a lot, what about all those lawsuits, what happens to them?

Gold: All lawsuits against the City of Detroit are automatically delayed from continuing – and that includes all challenges by pension officials and union members.

7 Action News: We know that motions challenging to the Chapter 9 filing are going on right now in 30th Circuit Court before Judge Rosemarie E. Aquilina. What could that judge do?

Gold: It is very unlikely the motion will be granted. The federal bankruptcy filing should trump any state court ruling at this point.

7 Action News: How about creditors, can they challenge the Chapter 9 filing?

Gold: Yes. They can ask the court to dismiss the case. However, it will be up to the judge to approve the Chapter 9 bankruptcy. And part of what the city must do is first attempt to negotiate with creditors in good faith. The city could be challenged on this, which is one of the reasons why municipal bankruptcies can drag on for months or years.

7 Action News: What else is Orr facing in this process?

Gold: Orr would propose a plan to restructure the city, which could include layoffs, selling of assets (such as the artwork at the DIA and Belle Isle), and doing away with union contracts, says Gold. He will try to get support for his plan from creditors, including bondholders, unions, and the pension boards. If he does, they vote on the plan, and if it is approved, the bankruptcy case would conclude and the plan would be put in place. Without enough support, the judge could order the city to continue negotiating with creditors. But if Orr gets enough support from the creditors, he can seek a plan over objections from the remaining creditors, and a judge could approve a plan over those objections.

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