Detroit, which filed the biggest U.S. municipal bankruptcy yesterday, asked a federal judge to set an initial hearing in the case as soon as July 23 to confirm that the city is entitled to routine protections from creditors.
Under the protection of Chapter 9 of the U.S. Bankruptcy Code, most lawsuits against a city are temporarily barred so the municipality can reorganize its operations and debt without distraction.
Detroit filed for bankruptcy yesterday after decades of decline left it too poor to pay billions of dollars owed bondholders, retired cops and current city workers. The city faces about $18 billion of debt it must restructure.
The city asked U.S. Bankruptcy Judge Steven W. Rhodes to confirm those and other rights routinely granted in bankruptcy. The request comes after a state court judge ordered Governor Rick Snyder to withdraw the bankruptcy petition, claiming the case violates Michigan’s constitution.
Circuit Court Judge Rosemarie E. Aquilina is overseeing cases brought by current and retired city workers who asked for a temporary restraining order to keep the city out of bankruptcy. Detroit’s Chapter 9 petition was filed minutes before the judge was able to rule.
Kenneth Klee, the bankruptcy lawyer who is leading the bankruptcy restructuring of Jefferson County, Alabama, said a state judge can’t force Detroit out of federal bankruptcy, even if Snyder agrees to try to withdraw.
A federal judge would have to agree to dismiss the case, said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles.
The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).