Detroit Bankruptcy Approved

by Kerry Lutz
Financial Survival Network

As predicted many months, Detroit’s bankruptcy filing has been validated in a ruling by Bankruptcy Court Judge Steven Rhodes. He rejected numerous objections posed by unions, pension funds and retirees. They’re the big losers under any reorganization plan that scales back Detroit’s long-term liabilities.

As a Financial Survival Network listener you knew this day was coming. The decision, which will be appealed, will eventually allow the city to proceed with what is currently the largest public bankruptcy in U.S. history.

Rhodes said, “This once proud and prosperous city can’t pay its debts. It’s insolvent. It’s eligible for bankruptcy. At the same time, it also has an opportunity for a fresh start.” He said the bankruptcy should have been done years earlier.

During the trial, which lasted for nine days, the unions and other creditors claimed that Orr never made a good faith effort in his negotiations to avoid the filing. Rhodes seemed to agree with this assertion, but said it probably wouldn’t have mattered as there are over 100,000 creditors and getting them to agree wouldn’t have been possible in any event. And as Rhodes stated, “The city needs help.”

“The status quo is unacceptable,” emergency manager Kevyn Orr testified. The city has been the victim of one party rule, by democrats for 51 years and it shows. Not that republicans are any better, but one party rule is a prescription for disaster for any town, city or state.

Perhaps the most important holding of Judge Rhodes’ decision is the finding that Chapter 9 of the Bankruptcy Code trumps or preempts the provision of the Michigan State Constitution that protects municipal pensioners against the reduction of pension benefits. These guarantees were put in many state constitutions long before public employees unions were created. No one alive seems to understand why such provisions were included in the first place and they have become a major roadblock to public financial solvency.

With the Detroit ruling and perhaps hundreds more in the future, public bankruptcies could well become the taxpayers last avalable lifeline. Another FSN prophecy that will no doubt come to pass. One thing is for certain, this decision is sending shockwaves through the unionThugocracy across the nation.

Kerry Lutz

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