Tuesday, December 3, 2013

Detroit Bankruptcy Allowed to Proceed

The New York Times reports:
The struggling metropolis of Detroit, overwhelmed by debt and groping for a path forward, on Tuesday became the largest American city ever to qualify for bankruptcy protection. 

Judge Steven W. Rhodes of the United States Bankruptcy Court, found that Detroit was insolvent and that the pension checks of retirees could be cut during a bankruptcy proceeding, a crucial part of his decision.

 Under the ruling, the vastly diminished city, once the nation’s fourth largest and the cradle of the American auto industry, will now be allowed to search for a way to pay off some portion of its debts and restore essential services to tolerable levels under court supervision. The goal, according to an emergency manager appointed by the state of Michigan, is to emerge next year from court protection with a formal plan for starting over. 

“This once proud and prosperous city cannot pay its debts. It is insolvent. It’s eligible for bankruptcy,” Judge Rhodes said Tuesday. “But it also has an opportunity for a fresh start.” 
While attorneys for the public workers unions intend to appeal, I think it is likely that Judge Rhodes decision will be upheld.  State law (protecting public workers' pensions) does not trump federal bankruptcy law.   The Supremacy Clause of the Constitution demands that result.


guy77money said...

That's with incredible low interest rates. As long as rates stay low most cities and towns will be ok. If we see rates rise to 1970's level (10% or more) then we will more bankruptcy's. When will rates rise? That's a question for economic professors not I.

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