Detroit filed for bankruptcy protection on Thursday under Chapter 9 of the U.S. Bankruptcy Code. Here is an explanation of what that means.
Q: What is Chapter 9?
A: Chapter 9 is a bankruptcy-protection filing specifically for municipalities so they can develop and negotiate a plan to adjust their debts, according to the U.S. Courts website. A municipality cannot file for Chapter 9 relief unless the state permits the filing. Detroit's emergency manager, Kevyn Orr, recommended bankruptcy, and Michigan Gov. Richard Snyder authorized the filing.
Q: How will the filing affect Detroit residents?
A: The lights will stay on. But some services could be reduced, and the city could choose to raise taxes.
Q: What will happen to union contracts or pensions?
A: There could be big changes with union contracts, but it depends on how the bankruptcy judge decides to move forward. Pensions for retirees likely will not be altered, but those for current workers could be reduced.
Q: Will anything be sold?
A: Under the federal bankruptcy code, neither a judge nor creditors can force the city to liquidate its assets. This is a decision the city or the emergency manager would make. It is possible that Detroit-owned assets will be put up for sale, but it isn't known when that would happen and which assets would be on the block. They could include anything from the Detroit Zoo to a van Gogh painting to the historic Fort Wayne, all assets the city owns, according to public filings and media reports.
Q: Can creditors sue to get money owed?
A: Chapter 9 includes a provision called the "automatic stay" that operates to stop all collection actions against the city and its property upon the filing of a petition. This protects the city from lawsuits by creditors hoping to get paid.
Q: How long will it take?
A: Mr. Orr has told The Wall Street Journal he hopes to steer Detroit out of bankruptcy court in a record six to eight months. Other municipal bankruptcy experts have said they don't think that is possible. Recent municipal bankruptcies, such as Jefferson County, Ala., or Stockton, Calif., have taken more than a year to emerge from court or are still in the process.
Q: How much will it cost?
A: Depending on how long the process takes, the process could cost the city hundreds of millions of dollars in legal and financial fees.
