Creditors file objections to Detroit bankruptcy

Associated PressAugust 19, 2013 

— Individual creditors who fear losing their pensions and paying more for health care were among those who began filing objections on Monday to Detroit’s request for bankruptcy protection, the largest municipal filing in U.S. history and a move aimed at wiping away billions of dollars in debt.

Federal Judge Steven Rhodes set Monday as the eligibility objection deadline in the bankruptcy petition by Detroit emergency manager Kevyn Orr.

Attorneys for creditors – including bond holders, insurers, banks, employee pension funds, individuals and companies that provided services – had until just before midnight to file objections electronically. City residents filing for themselves began dropping off their objections Monday morning at the court.

A restructuring team representing Detroit’s Police and Fire Retirement System and General Retirement System, the city’s two largest creditors, was expected to file objections by Monday’s deadline.

Bankruptcy filings show the pension systems are the top two unsecured creditors. The city has about 21,000 retired workers who are owed benefits, with underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.

“I need my pension for basic human needs,” wrote Mary Dugans in her one-page filing Monday. “Additionally, I’m 80 years old with age-related medical conditions. Therefore, I have to pay for medical co-pays as well as for prescribed medications. Please consider my situation as you approach this important matter. Thanks.”

Michael Benson, a retired water department employee, objected to the use of retiree pensions “for any purpose other than retirees.”

“I believe the bankruptcy filing … is illegal and morally wrong,” he wrote. “Surely there are other options available to the city.”

But Orr, hired in March by the state to fix Detroit’s finances, has said there are no other options for Detroit. The city’s budget deficit has chronically hovered near or above $300 million over the past few years.

Orr filed for bankruptcy on July 18. He claims the city has at least $18 billion in liabilities, from underfunded pensions and health care costs to bonds that lack city revenue to be paid off.

He also stopped payment on $2.5 billion in debt in June.

Monday’s deadline for objections drew protesters outside federal court in Detroit.

On the other side of the building about 30 or so others gathered to file their objections. Some in that group said in their filings that there are no provisions in a Chapter 9 that gave Orr authority to file the bankruptcy petition and that it was done without the consent of the city’s elected representatives.

Only creditors holding accepted claims likely have standing to object to Orr’s petition, according to James McTevia, a turnaround expert and managing member of McTevia & Associates.

“While there is no doubt that … residents are seriously affected by the city of Detroit’s problems and the ultimate resolutions, it is my opinion that they are not either individually or collectively creditors,” he wrote Monday in an email to The Associated Press.

Monday’s deadline is just one of several steps that could lead to federal Judge Steven Rhodes allowing Detroit into bankruptcy protection while it restructures.

The city has until Sept. 6 to file its responses to any objections by creditors. A multi-day hearing on the eligibility question is scheduled to start Oct. 23.

“Objecting creditors are individual parties in interest in the Chapter 9 bankrupt estate,” McTevia wrote. “It is doubtful that the judge will render a blanket ruling either accepting or rejecting all objections.”

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