How Detroit’s Bankruptcy May Affect Court Cases and Law

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(–July 31, 2013) Detroit Michigan– On July 18th Detroit Emergency Manager Kevyn Orr filed for bankruptcy with the support of Gov. Rick Snyder. This move was heavily protested at the time, and is still facing an upward legal battle. Orr believes that by filing for bankruptcy, Detroit will be able to climb out of the deep well of debt that the city is currently facing.

The city currently faces a debt of $18 billion, half of which is needed for the pensions and health benefits of its 9,500 current employees and 21,000 retirees. Orr believes that the only way that Detroit can survive their current woes, which include a severe lack of public services as well as large losses in population, is to gain financial assistance from banks and unions, as well as cutting retiree pensions. More than one Detroit federal attorney had thoughts to share on the matter.

Barton Morris, a Michigan federal defense lawyer, said, “Normally, Michigan law protects public pensions from cuts such as those that Mr. Orr is suggesting. However, this is only true outside of bankruptcy. While city unions are quick to point out that, by contract, pensions are not to be ‘diminished or impaired,’ Orr is just as quick to point out that the bankruptcy code pre-empts the state constitution, allowing those contracts to be cut.”

Mr. Morris, a Detroit federal attorney, continued: “While this case is obviously important to Detroit’s current employees and retirees, it is also an interesting case legally, as it could set an important precedent for other cities that are struggling with their retirement obligations. If the bankruptcy in Detroit were to succeed in reducing pensions, it would be considered an issue of federal law that other government sectors will want to mirror.”

Mr. Orr also wishes to cut city-paid health care coverage, along with life insurance plans. Under his plan, retirees would continue to use Medicare, while current employees would start using the new healthcare exchanges as of January 1. Many Michigan federal defense lawyers have suggested that this case will go on for years, possibly costing hundreds of millions of dollars. In order for Mr. Orr and his supporters to convince a bankruptcy judge that such a change would be possible, they would have to prove that Detroit has plans in place to repair the city’s infrastructure.



Baron Morris

321 South Williams Street

Royal Oak, MI 48067

Office: (248) 541-2600
Cell: (248) 219-9555