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What Chapter 9 Bankruptcy
Means for Detroit
Detroit's Services Could Be Reduced, Its Union Contracts and Pensions Altered
By EMILY GLAZER
Detroit filed for bankruptcy protection on Thursday under Chapter 9 of the U.S. Bankruptcy Code. Here is an explanation of what that means.
Q: What is Chapter 9?
A: Chapter 9 is a bankruptcy-protection filing specifically for municipalities so they can develop and negotiate a plan to adjust their debts, according to the U.S. Courts website. A municipality can't file for Chapter 9 relief unless the state permits the filing. Detroit's emergency manager, Kevyn Orr, recommended bankruptcy, and Michigan Gov. Richard Snyder authorized the filing.
Related
A: The lights will stay on. But some services could be reduced, and the city could choose to raise taxes.
Q: What will happen to union contracts or pensions?
A: There could be big changes with union contracts, but it depends on how the bankruptcy judge responds to lawyer requests. Pensions for some retirees may not be altered, but those for current workers could be reduced.
Q: Will anything be sold?
A: Under the federal bankruptcy code, neither a judge nor creditors can force the city to liquidate its assets. This is a decision the city or the emergency manager would make. It is possible that Detroit-owned assets will be put up for sale, but it isn't known when that would happen and which assets would be on the block. They could include anything from the Detroit Zoo to a van Gogh painting to the historic Fort Wayne, all assets the city owns, according to public filings and media reports.
Q: Can creditors sue to get money owed?
A: Chapter 9 includes a provision called the "automatic stay" that operates to stop all collection actions against the city and its property upon the filing of a petition. This protects the city from lawsuits by creditors hoping to get paid.
Q: How long will it take?
A: Mr. Orr said during a news conference Thursday that while he has "concerns about the timeline," he plans to be finished "in late summer or fall of next year." Other municipal-bankruptcy experts have said they don't think that is possible. Recent municipal bankruptcies, such as Jefferson County, Ala., or Stockton, Calif., have taken more than a year to emerge from court oversight or are still in the process.
Q: How much will it cost?
A: Depending on how long the process takes, the process could cost the city hundreds of millions of dollars in legal and financial fees.
Q: What are bondholders getting paid?
A: This is still in the works. A deal is wrapping up to pay UBS AG and Bank of America BAC +3.14% Merrill Lynch 75 cents on the dollar on nearly $340 million in secured debt, according to people familiar with the matter. Unsecured creditors, such as some retirees and general obligation bonds, will likely get just pennies on the dollar.
Means for Detroit
Detroit's Services Could Be Reduced, Its Union Contracts and Pensions Altered
By EMILY GLAZER
Detroit filed for bankruptcy protection on Thursday under Chapter 9 of the U.S. Bankruptcy Code. Here is an explanation of what that means.
Q: What is Chapter 9?
A: Chapter 9 is a bankruptcy-protection filing specifically for municipalities so they can develop and negotiate a plan to adjust their debts, according to the U.S. Courts website. A municipality can't file for Chapter 9 relief unless the state permits the filing. Detroit's emergency manager, Kevyn Orr, recommended bankruptcy, and Michigan Gov. Richard Snyder authorized the filing.
Related
- Record Bankruptcy for Detroit
- Bankruptcy Plan Called Unfair to Bondholders
- By the Numbers: A Long, Sad Decline
- Detroit's Statement: 'Best and Most Efficient Way'
- Earlier: Black Flight Hits Detroit
- Detroit's Press Release
A: The lights will stay on. But some services could be reduced, and the city could choose to raise taxes.
Q: What will happen to union contracts or pensions?
A: There could be big changes with union contracts, but it depends on how the bankruptcy judge responds to lawyer requests. Pensions for some retirees may not be altered, but those for current workers could be reduced.
Q: Will anything be sold?
A: Under the federal bankruptcy code, neither a judge nor creditors can force the city to liquidate its assets. This is a decision the city or the emergency manager would make. It is possible that Detroit-owned assets will be put up for sale, but it isn't known when that would happen and which assets would be on the block. They could include anything from the Detroit Zoo to a van Gogh painting to the historic Fort Wayne, all assets the city owns, according to public filings and media reports.
Q: Can creditors sue to get money owed?
A: Chapter 9 includes a provision called the "automatic stay" that operates to stop all collection actions against the city and its property upon the filing of a petition. This protects the city from lawsuits by creditors hoping to get paid.
Q: How long will it take?
A: Mr. Orr said during a news conference Thursday that while he has "concerns about the timeline," he plans to be finished "in late summer or fall of next year." Other municipal-bankruptcy experts have said they don't think that is possible. Recent municipal bankruptcies, such as Jefferson County, Ala., or Stockton, Calif., have taken more than a year to emerge from court oversight or are still in the process.
Q: How much will it cost?
A: Depending on how long the process takes, the process could cost the city hundreds of millions of dollars in legal and financial fees.
Q: What are bondholders getting paid?
A: This is still in the works. A deal is wrapping up to pay UBS AG and Bank of America BAC +3.14% Merrill Lynch 75 cents on the dollar on nearly $340 million in secured debt, according to people familiar with the matter. Unsecured creditors, such as some retirees and general obligation bonds, will likely get just pennies on the dollar.