The City of Detroit’s bankruptcy attorneys are currently preparing for the confirmation hearing of the city’s plan.
In most Chapter 13 bankruptcies, which allows for reorganization of individual debtors, most confirmation hearings are mere formality. Bankruptcy attorneys for the debtor typically can resolve all issues with the creditor’s bankruptcy lawyers. In addition, bankruptcy attorneys typically wish to come to an agreement with the bankruptcy trustee’s office.
Chapter 13 bankruptcy confirmation hearings in Detroit start with status conferences where all parties can discuss issues remaining, both legal and factual, and come to an agreement.
If the parties cannot reach an agreement at status conference, the bankruptcy lawyers for the parties will be required to appear in front of the judge later in the day for the Court to settle all remaining disputes.
As the Chapter 13 is a voluntary process, the debtor can either accept the limitations imposed by the judge or just leave the bankruptcy. This is extremely rare, though, as Chapter 13 offers a much better option than attempting to restructure debts without bankruptcy protection for most debtors.
An experienced bankruptcy lawyer can discuss this in much better detail for specific cases after the facts are known.
Detroit’s historic Chapter 9 bankruptcy will culminate in a high-stakes court battle starting Tuesday that will determine the fate of the city’s sweeping plan that would pay pensioners more than financial creditors, preserve the Detroit Institute of Arts and slash more than $7 billion in debt while reinvesting in services.
With the fate of pensioners’ pocketbooks, the museum and financial creditors on the line, the city is facing extraordinary pressure to prove that the grand bargain to resolve the bankruptcy and reinvest $1.4 billion over 10 years in services is fair.
The power to approve Detroit’s plan of adjustment or force the city to start over rests with Bankruptcy Judge Steven Rhodes, who will examine hundreds of exhibits and hear testimony from potentially more than 80 witnesses during a trial that could stretch through Oct. 17.
As Rhodes put it, the proceeding — called a “plan confirmation hearing” — will determine “the future of the city of Detroit.”
The city’s bitter feud with its holdout financial creditors will take center stage — with the powerful bond insurers bidding to prove the plan of adjustment is a disaster that must be rejected.
“This is the dramatic finale — like when you’re watching a movie, this is the big final battle,” University of Michigan bankruptcy law professor John Pottow said. “There’s going to be fireworks flying.”
Winning the judge’s approval won’t be easy.
The cornerstone of Detroit’s restructuring plan is called the grand bargain, which would allow the city to accept the equivalent of $816 million over 20 years from the State of Michigan, nonprofit foundations and DIA donors to reduce pension cuts and transfer the museum to a charitable trust.
But the city’s most vociferous opponents — bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) — argue that the grand bargain is illegal and amounts to unfair discrimination in favor of pensioners.
When taking into account the grand bargain cash, Detroit pensioners are getting about six times more than the insurers, according to the city’s financial calculations.
“There are good justifications for discrimination,” Wayne State University bankruptcy law professor Laura Beth Bartell said. “It’s definitely discrimination.”
Is grand bargain fair?
Syncora and FGIC also contend that Detroit emergency manager Kevyn Orr is frittering away the DIA for billions less than it’s worth.
But the city’s Jones Day lawyers argue that the deal is fair in part because grand bargain funding was never intended for financial giants.
In addition, unequal doesn’t necessarily mean unfair. The city is expected to argue that Detroit pensioners deserve better treatment in part because they are relinquishing their right to sue the state and city over pension cuts. U.S. bankruptcy law allows different unsecured creditors to be treated differently if there’s justification to do so.
Detroit Free Press: http://www.freep.com/article/20140831/NEWS01/308310047/Detroit-bankruptcy-trial
