A critical summer for Detroit bankruptcy case

DETROIT (AP) -- Nearly a year after filing the largest public bankruptcy in U.S. history, Detroit has put its exit plan in the hands of creditors, especially 32,000 retirees and current and former workers. Here's a look at where things stand:


Tens of thousands of creditors in different classes have until July 11 to vote on the city's proposed cure, but eyes mostly are on retirees whose modest pensions, averaging $19,000 a year, would be cut by 4.5 percent. They would also lose annual cost-of-living payments. Police and fire retirees, whose separate pension fund is healthier, would see only a small cost-of-living cut.


If the pension changes are approved, a surge of outside cash -- $816 million -- would flow from foundations, philanthropists and the state of Michigan to prevent any deeper cuts and protect city-owned art at the Detroit Institute of Arts. If the pension changes are defeated, the money disappears and cuts would be drastic.


Creditors don't get the final word in approving or rejecting a bankruptcy exit. Judge Steven Rhodes plans to hold a multi-day trial, starting July 24. His job is to determine whether the plan is "feasible" and in the best interest of creditors. The judge has his own experts to advise him. Rhodes can force the entire plan on creditors, from Wall Street to Main Street, even if they don't like what Detroit is proposing. To trigger "cram down," he needs only one class of creditors to vote in favor.


Michigan's constitution says a pension earned in a public job can't be harmed. But Rhodes in December said there's no such protection in bankruptcy -- the most significant decision so far. It shifted momentum to the city and led to a series of closed-door talks to reach a compromise with retirees, unions and pension funds. State Attorney General Bill Schuette believes Rhodes is wrong, but he'll drop a legal challenge at a federal appeals court if retirees vote to take the hit.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Stories

  • Prime-Time
    Will prime-time be a good time for the Seahawks once again?

  • Week in Photos
    Cheetahs, penguins and Santa make it in this week's photos
ATTENTION COMMENTERS: We've changed our comments, but want to keep you in the conversation.
Please login below with your Facebook, Twitter, Google+ or Disqus account. Existing MyNorthwest account holders will need to create a new Disqus account or use one of the social logins provided below. Thank you.
comments powered by Disqus
Sign up for breaking news e-mail alerts from MyNorthwest.com
In the community
Do you know an exceptional citizen who has impacted and inspired others?
KIRO Radio and WSECU would like to recognize six oustanding citizens this year. Nominate them to be recognized and to receive a $2,000 charitable grant.