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The 4 Things You Need to Know About Detroit's Bankruptcy

It's not all bad news in the Motor City.
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Packard Automotive Plant, an abandoned automobile-manufacturing factory in Detroit. (PHOTO: ALBERT DUCE/WIKIMEDIA COMMONS)

Packard Automotive Plant, an abandoned automobile-manufacturing factory in Detroit. (PHOTO: ALBERT DUCE/WIKIMEDIA COMMONS)

I wouldn’t be surprised if you thought that yesterday’s thundering news about Detroit was ... well, old news. “Detroit, bankrupt?” you might say. “When was the last time Detroit wasn’t broke?” The city that once brought you the affordable automobile and living wage is also the birthplace of “ruin porn”—those ubiquitous images of looming vacant theaters, blocks of urban prairies, and game pheasants trotting through once-thriving intersections. Here in the heart of a city I love, where about 700,000 of us make our home, the pace of slow-moving and painful transformation feels downright evolutionary.

But it is, in fact, a jarring development that yesterday, the city became the largest in the nation to file for municipal bankruptcy. Emergency Manager Kevyn Orr and his team filed a complex petition in federal court for Chapter 9 protections, claiming about $18.5 billion in debt. As the Detroit News’ David Shephardson has pointed out, the city’s bankruptcy petition is more than 4,000 pages—with a 3,386-page list of creditors.

At this unusual point of public crisis, here are the four most important things to know.

“Detroit Future City” is a groundbreaking urban planning project that aims to do nothing less than transform how decisions are made in Detroit for the next 50 years.

Kevyn Orr—the Washington D.C. bankruptcy lawyer who previously led Chrysler’s successful restructuring and, as the city’s emergency manager, has the power of both mayor and council—released a plan in June to restructure the city's debt and obligations. His plan made the radical proposition to prioritize city services over city creditors, leaving many creditors with about 10 cents on the dollar. Controversially, these weren’t just Wall Street creditors, but also underfunded public pension claims, which had been classified as “unsecured debt”—a move that provoked a fateful lawsuit against the city (see #2 below). Orr invited out-of-town creditors on a bus tour through the city in an effort to underscore the on-the-ground seriousness of Detroit’s emergency. But Wall Street didn’t want to see it: they backed out of the tour and began flirting with lawsuits of their own against Detroit. Orr has consistently warned that if negotiations hit a brick wall, he would swiftly file for bankruptcy protection—and indeed, that happened yesterday.

A matter of moments made the difference yesterday. Detroit’s two public-employee pension boards filed a lawsuit against the city on Wednesday in an effort to prevent pension cuts through either debt restructuring or bankruptcy. They filed earlier than intended in order to beat a Detroit bankruptcy, and an emergency hearing was scheduled. At the request of Governor Rick Snyder’s attorneys, it was delayed five minutes—just enough time for the city to file its Chapter 9 petition. That move stayed all pending litigation involving the city—meaning that the pension lawsuit is on indefinite hold. Judge Rosemarie Aquilina in Michigan’s Ingham County, who presided over the hearing, told the attorneys for the pension funds that she would have issued a restraining order to stop the Detroit bankruptcy, but her power to do so had just been eliminated. (She did, however, agree to stay any further moves that would put city pensions at risk.) In an interesting revelation, the Detroit Free Presspointed out that the city appeared to have fast-tracked its bankruptcy petition: the petition filed had been typed out with another date, which was scratched out by hand, and changed to July 18.

Technically, Detroit isn’t yet “bankrupt.” The city’s Chapter 9 filing begins a 30- to 90-day evaluation period, where courts will first decide on its eligibility for protection, and then clarify how many creditors are eligible for the relatively small settlement the city can offer them. The chief judge of the U.S. 6th Circuit Court of Appeals will choose a judge to oversee Detroit’s case. Creditors can challenge the city’s bankruptcy filing by issuing motions to dismiss the case—a very likely push on their part. Reorganization and negotiations, supervised by the court, could take months, or years. In a press conference after filing the petition, Orr said that he hopes to exit bankruptcy by the end of summer 2014. That is optimistic.

For years, thousands of people have been digging into Detroit, exploring transformative strategies for building a city that is sustainable, equitable, and beautiful. This is happening at both the professional and grassroots levels. “Detroit Future City” is a groundbreaking urban planning project that aims to do nothing less than transform how decisions are made in Detroit for the next 50 years. DFC released its long-term vision for the city—informed by hundreds of meetings with citizens—this winter, and its newly established program management office will see to it that those ideas become actionable. Meanwhile, the Allied Media Project and the Detroit Digital Justice Coalition are using media in ways that make it possible for neighborhood-based organizing to take shape. Business owners, artists, environmentalists, community organizers, urban farmers, and untold others are daily meeting the hard facts of Detroit with persistence and imagination that won’t be measured in bankruptcy proceedings. While Detroit’s problems are real, so are the people with a nuanced faith in the city’s future. We know it’s worth the fight.