Next for Detroit: Lots of Pain With Bankruptcy

Jul 19, 2013 1:12pm

Filing for bankruptcy means painful changes are ahead for Detroit’s residents, retirees and city workers.

But Emergency Financial Manager Kevyn Orr, the expert hired to stop the city’s fiscal free fall, argues “it gives us breathing room.”

Bankruptcy was the only choice, says Orr. “We were being sued almost on a weekly basis.”

Detroit owes about $18 billion to 100,000 creditors. The bankruptcy may lead to a big legal fight over who gets paid. Dan McNamara of Detroit’s firefighters union is vowing to fight the bankruptcy filing.

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“They can’t just abandon the city and just walk in here and think they can do what they’re gonna do. They need to talk to us,” he said.

Chapter 9 bankruptcy gives Detroit a lot of leeway to reject or rewrite union contracts. Retiree pensions and health care benefits may be slashed. Bondholders are certain to lose money.

“It’s like taking a band-aid off,” says Detroit City Council President Pro Tem Andre Spivey. “Do you rip it off or take it off slow?” Financial hurt for the city’s creditors is inevitable, he says.

“There’s going to be some pain in the next few weeks or months and maybe even a year or so. But we will get through it.”

Peter Henning, a law professor at Wayne State University, calls it a watershed moment that takes control of the city out of local hands.  ”Now what you’re talking about is a federal bankruptcy judge deciding who’s going to get paid and how much they are going to get paid,” he said.

The decline of Motown – the motor city – has been in the making for decades. The city’s population has fallen by two-thirds since it was an economic and industrial powerhouse in the 1950′s.

Orr says Detroit will stay open for business and bills will still be paid. The city will provide police, fire and other services at the current level.

“We are planning to get through this process as expeditiously as possible. We are targeting to get through this late summer or fall of next year.”

But with so many rival claims on Detroit from such a large number of groups and individuals the process could take longer before the city is on the road to recovery.

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