City of Detroit Submits Plan of Adjustment in Bankruptcy Case

The City of Detroit, the largest municipality in the country to avail itself of bankruptcy protection, submitted its Plan of Adjustment to the federal bankruptcy court handling its case. This plan represents the blueprint for how the city seeks to pay its creditors and raise funds to pay for ongoing services and municipal investments as the plan is instituted. The plan of adjustment must be approved by Bankruptcy Court Judge Steven J. Rhodes presiding over the Chapter 9 bankruptcy matter.


One of the biggest issues addressed by the City is how it intends to pay retired municipal workers. .Under the terms of the Plan, retired police officers and firefighters “would likely receive in excess of 90 percent of their earned pensions after elimination of cost of living allowances.” Other groups of retirees would get approximately 70 percent of the benefits they had previously been slated to receive. By contrast, other unsecured creditors, such as banks would be paid about 20 percent on the dollar for each of its claims.


The Plan details investments the City wants to make in reducing the blight in and revitalizing certain neighborhoods, lowering the reaction times of the police to law enforcement calls. Such investment would require appropriation of funds by Michigan’s legislature as well as additional lending from banking institutions.  Some Wall Street creditors complain that the proposed terms will lessen the inclination of banks to lend to the troubled municipality. One of the expected fights by two creditors involves the City’s recent suit to avoid obligations under so-called certificates of participation issued to raise money for the City back in 2005-6. The Banks which issued these instruments claimed that these special trusts were exempt from discharge under bankruptcy law. After the bankruptcy judge hinted at a recent hearing in the matter to the City manager that the City should not have to bear the costs of such obligations, the City proceeded to bring this separate legal action against those banks.


While creditors will have the opportunity to express their objections to the proposed plan, the Judge may be able to exercise his “cramdown” powers in order to implement it in whole or in part. There are expected to be several hearings in the case before a final resolution is reached.


The attorneys at Giddens & Gatton Law, P.C. handle bankruptcy cases including Chapter 7, Chapter 11 and Chapter 13 bankruptcies. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at