This Friday, a judge is set to hear the next step in the city of Detroit’s Chapter 9 bankruptcy proceedings. If all goes according to the city’s plan, their filing for bankruptcy will be approved, and the city’s emergency manager, Kevyn Orr, will be able to move forward with a restructuring plan. The filing is unique in its size and scope, and brings with it a number of complications rarely seen in other bankruptcies.
Filing for Bankruptcy Not End of City’s Problems
A Chapter 9 bankruptcy is notably different from a business Chapter 11 or a personal Chapter 7 in that the liquidation of assets cannot be mandated by the court. So, for example, Detroit’s municipally owned art collection, valued at over $1 billion dollars, will not necessarily have to be sold at auction to cover some of the $18 billion in debt the city owed when it filed for bankruptcy. In some ways, it might be easier were the court able to order the priceless works of art to be sold; as it is, those in charge will face a tough choice.
The list of creditors covers some 3,500 pages, including city workers and pensioners who are justifiably worried about their financial futures. These creditors have until August 19 to file their objections to Detroit’s Chapter 9 proceeding, should they so wish. August 19 is the date set to determine whether Detroit is truly insolvent, and whether they made a good faith effort to negotiate with their creditors before filing for bankruptcy – although in Detroit’s case, the sheer number of creditors may be enough to have made negotiation impossible.