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Wednesday, October 23, 2013

Detroit Bankruptcy Trial Begins

Protesters rally outside The Theodore Levin United States Courthouse in Detroit, Wednesday, Oct. 23, 2013. (Paul Sancya/AP)

Protesters rally outside The Theodore Levin United States Courthouse in Detroit, Wednesday, Oct. 23, 2013. (Paul Sancya/AP)

The trial to determine whether Detroit is eligible for bankruptcy begins today. Many of the city’s creditors oppose the bankruptcy, while others argue that there’s no other option.

In March, Kevyn Orr was appointed emergency manager and took control of the city’s finances, but the Detroit still holds close to 18 billion dollars in long-term debt.




From NPR and WBUR Boston, I'm Robin Young.


I'm Jeremy Hobson. It's HERE AND NOW. A trial started today in Detroit to determine whether the city is eligible for bankruptcy protection. The Motor City filed for Chapter 9 protection in July, but many of Detroit's creditors oppose it, saying it goes against Michigan's Constitution. Others argue it's the only option.

YOUNG: In march, Kevyn Orr was appointed emergency manager and took control of the city's finances. But Detroit still holds close to $18 billion in long-term debt. So today a team of lawyers is making its case, hoping to convince the judge that the city can enter Chapter 9 bankruptcy. Quinn Klinefelter of public radio's WDET in Detroit has been in the courtroom. And Quinn, what's been happening?

QUINN KLINEFELTER, BYLINE: Well, they are arguing on both sides of the case. In particular, the city, which says that that estimated $18 billion in debt is just way too much for them to get out from under. They have trouble paying any of the bills, have trouble meeting payroll, so broke in fact that they can't get out without seeking the Chapter 9 bankruptcy protection.

They had reached some deals with creditors, but hundreds of others, who are lining up in court today, say that they do not believe that the city is in fact insolvent, that they could have found savings that they didn't seek. There's retired workers in particular that say that the bankruptcy filing is also going to violate their chances to get pensions, which would violate the state Constitution because you're going to have to cut those pension payments in order to try to get out from under some of that debt load.

YOUNG: So when you speak of creditors, you speak of the people, the Detroit residents, who want to get their pensions from the city. But who else might we hear from in this trial?

KLINEFELTER: Well, there will be from some of the retirees that you mentioned. They talk about putting some of them actually up on the stand. Also some of the creditors, some of the banks, some of the clients that Detroit owes bonds to, although a lot of them are stepping back and not actually being involved in this trial.

The emergency manager, Kevyn Orr, which was mentioned before, he likely will testify for the first time and be grilled by attorneys for the retirees on specifically why he did what he did and when he did it. The timing is important because they actually got the bankruptcy in before the retirees could put a lawsuit in. Once the bankruptcy filing was in place, that kind of froze all lawsuits against the city.

And also the governor of Michigan, Rick Snyder, may in fact be compelled to testify. He's the one that hired Kevyn Orr. He's the one that authorized the bankruptcy to go forward. And in many ways people see this as the governor trying to find his way to right the financial ship in Detroit.

YOUNG: Well, remind us what happens if Detroit doesn't make its case to qualify for bankruptcy and what happens if it does.

KLINEFELTER: Well, it has to prove that they're insolvent, that they can't meet the payrolls, and that they bargained in good faith with unions and other creditors who were trying to reach a deal to see if they could find any savings. In fact, that's what the emergency manager Orr is arguing. The retirees in particular argue the other way around. They had a labor contract set up with the city that they were not even allowed to really be heard by city officials because the state didn't want it heard.

They say that the city - or that the state had made up their mind long ago that Detroit needed to go bankrupt in order to get out from under that debt. They say that's illegal. Also there's a provision in the Michigan Constitution that forbids cutting public pension payments. And as part of this bankruptcy, they would have to trim those monies to pensioners, many of whom worked 20, 30 years for the city, set their retirement based on getting that kind of money, and now are going to be looking at, you know, 40 percent or less, perhaps, of what they thought they had to work with.

So it's a real fight for their life in this particular trial.

YOUNG: And if they are able to win over the judge and get bankruptcy, I mean you've said if they don't, they're going to have to find the money to pay people, but if they do, what happens?

KLINEFELTER: Well, you know, if they're able to do it, then they go for a restructuring plan, where they will say here's how we're going to right the financial ship, here's the next steps we take once we've gotten out of this debt load. If they don't do it, though, the fact is it's likely the city would be thrown to the financial wolves, really. There would be a flood of lawsuits. Everybody would want their scrap of what money is left in the city's coffers, which isn't much, and the result likely would be chaos if the bankruptcy is not approved.

YOUNG: That's Quinn Klinefelter, senior news editor at WDET in Detroit, as the trial to determine whether or not Detroit can go bankrupt gets underway today. Quinn, thanks as always.

KLINEFELTER: Thank you. Transcript provided by NPR, Copyright NPR.

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Robin Young and Jeremy Hobson host Here & Now, a live two-hour production of NPR and WBUR Boston.

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