Detroit files for bankruptcy

[Karee 4,190]

NEW YORK (CNNMoney)

Detroit filed for bankruptcy Thursday afternoon, becoming the nation's largest public sector bankruptcy. The move could slash pension benefits to city workers and retirees, and leave investors holding the city's debt with only pennies on the dollar.

Emergency Manager Kevyn Orr, appointed by Michigan Gov. Rick Snyder to oversee the city's finances, had been holding meetings with various creditors for the last five weeks in an effort to shed debt that the city can no longer afford. But despite the fact that some banks agreed to take reduced payments, Orr sought and received permission from Snyder to file.

Pension funds and retirees who fear deep cuts in promised benefits had filed suits to try to block a filing. Thursday's filing came before a hearing on the suits that was set for Monday.

Orr already halted payments on about $2 billion in debt last month, saying the city needed to preserve its dwindling supply of cash. His reorganization plan calls for cutting $11.5 billion in unsecured debt -- including pensions, health care funds and loans not backed by assets -- down to $2 billion. That would mean that investors and retirees would receive an average of just 17% of what they are owed. Specific plans for the cuts are unknown at this time.

Related: City of Detroit is financially 'insolvent'

Cutting retiree's pensions in a municipal bankruptcy has never been done before, said Michael Sweet, a California bankruptcy attorney who is an expert in public sector bankruptcies.

"It's relatively easy to blow off a creditor. It's much harder when it's people who are the fabric of your community who you'll need going forward," he said. "You need a police force, you need a fire department. You're saying [to them] you're not worth what you were previously promised."

Sweet said case law on whether pensions can be cut this way is very limited, and it could take years for a court fight over pension cuts to work its way to the U.S. Supreme Court. Given the poor state of funding for many public sector pension funds nationwide, "it's a big enough question, that (the Supreme Court) is where it likely will have to go," he said.

Related: Detroit halts debt payments, plans pension cuts

When employees of a bankrupt business lose their promised pensions, the Pension Benefit Guarantee Corp. steps in and provides a minimal level of benefits to the retirees. But that federal agency doesn't back pensions in the public sector.

Snyder spokeswoman Sara Wurfel said the decision to file for bankruptcy came after careful deliberation.

"This has been a huge problem for decades and it's come to a crisis point," she said. "The emergency manager tried to work with all the creditors, including pensioners."

Retirees and city employees say they can't accept cuts in their pension benefits.

"How am I supposed to live without my pension?" said David Sole, 65, after a protest in Detroit last month. Sole retired from the city's water department in January after 22 years.

Detroit city employees, retirees, tell us here how this affects you

Investors say the bankruptcy will make it more difficult for cities and towns everywhere to raise the money they need to build bridges, schools and other infrastructure. It will also hurt municipal bonds held by individual investors. There are more than $1 trillion worth of these general obligation bonds issued by local governments that are at risk said Peter Hayes, head of municipal bonds at BlackRock. He said there will be a ripple effect nationwide.

Detroit may sell its art treasures

Orr said that the city needs to cut debt in order to restore services and lower costs, such as taxes and insurance, that he says have chased businesses and residents out of the city.

Detroit's population has fallen 28% since 2000. The unemployment rate, while down from a peak of 27.8% in the summer of 2009 -- when General Motors (GM, Fortune 500) and Chrysler Group were going through their own bankruptcies -- is still at 16.3%, nearly twice Michigan's statewide average.

While the auto industry has enjoyed a resurgence with strong car sales and profits, GM, Ford Motor (F, Fortune 500), Chrysler Group and parts manufacturers have been on a hiring binge, most of the industry's Michigan plants lay outside of city limits.

Source:

http://money.cnn.com/2013/07/18/news/economy/detroit-bankruptcy/index.html?hpt=hp_t1

[RGinWA 816]

What happens when a City files bankruptcy? Do they have to sell off all their property? Do the workers get paid?

It's crazy that a City that large could go bankrupt.

[Karee 4,190]

What happens when a City files bankruptcy? Do they have to sell off all their property? Do the workers get paid?

It's crazy that a City that large could go bankrupt.

You can thank the unions.

[RGinWA 816]

You can thank the unions.

Yes, everything is unions...except when the City was thriving.

[Karee 4,190]

Yes, everything is unions...except when the City was thriving.

Yeah the city was thriving in the 50s. Since then, it's been all down hill. Busing was another cool program that helped to push along it's demise.

[RGinWA 816]

Yeah the city was thriving in the 50s. Since then, it's been all down hill. Busing was another cool program that helped to push along it's demise.

You should be Mayor, then all would be well in the world.

[Karee 4,190]

You should be Mayor, then all would be well in the world.

I'm white. There's no way I could ever get elected. Not only that, they have a residency rule that if you work for the city, you have to live in it. No way in hell I'd do that.

[GandD 5,966]

Unions are junk man. MAYBE a good idea in theory but in practice they are worthless. The Twinkies folks are back to work, at reduced pay. Good job unions, you showed management. Now pay your dues.

[Karee 4,190]

Unions are junk man. MAYBE a good idea in theory but in practice they are worthless. The Twinkies folks are back to work, at reduced pay. Good job unions, you showed management. Now pay your dues.

Unions had a purpose back in the day. A good one at that. 8 hour work day, overtime and alot of other good things came from the unions. They have been nothing but job destroyers since the 70s though.

[Bugs 455]

So how does one who paid into a pension instead of social security all his working life survive after losing the pension to city bankruptcy?

[The Nature Boy 4,224]

Unions had a purpose back in the day. A good one at that. 8 hour work day, overtime and alot of other good things came from the unions. They have been nothing but job destroyers since the 70s though.

i find it more than amusing that now the unions are complaining to Obama that Obama care is going to ruin the 40 hour work week.

[RGinWA 816]

Unions are junk man. MAYBE a good idea in theory but in practice they are worthless. The Twinkies folks are back to work, at reduced pay. Good job unions, you showed management. Now pay your dues.

As a Union member I have to strongly disagree.

[GandD 5,966]

As a Union member I have to strongly disagree.

I don't feel like the union leaders give a ####### about the people and the people don't give a ####### about their job. Well, they do care about what specifically doesn't fall within their job. Union workers are all over that.

[Karee 4,190]

The ultra-corrupt black mayor that ran the place for years had a big part in it as well. Everytime they got close to catching him scamming the city, he would scream Racism!, and that would be the end of it.

As a Union member I have to strongly disagree.

How do you feel about getting paid based on how long you have performed a job, rather than how well you perform that job?

[Darnell 8,478]

I heard the report on NPR radio, earlier today.

I'm excited, really !

So how does one who paid into a pension instead of social security all his working life survive after losing the pension to city bankruptcy?

That's a great question.