Detroit bankruptcy given the go-ahead

Members of Local 334 of the Detroit Firefighters Association protest outside during the City of Detroit's bankruptcy hearing at the U.S. Courthouse July 24, 2013 in Detroit, Michigan. Detroit is the largest city to file for bankruptcy in U.S. history and owes its approximately 100,000 creditors between $18 and $20 billion. 

Updated Tuesday, November 3, 2013, 11:00 a.m. ET: 

A judge in Detroit has ruled that the city is eligible for bankruptcy protection – something it filed for in July.

The decision by U.S. bankruptcy judge Steven Rhodes sets the stage for battles over pension reductions and other tactics Detroit will pursue to raise money,

Since it's bankruptcy filing in July, the city has had something of a reprieve, says David Skeel, the Caryl Louise Boies Visiting Professor of Law at NYU Law School.

“Creditors have [had] to stop trying to collect what they are owed, and Detroit also stopped paying a number of its obligations,” he explains.

The Motor City has tens of thousands of creditors. 

According to Eric Scorsone, who researches government finance at Michigan State University, with bankruptcy protection, Detroit's emergency manager will draft a restructuring proposal.

“And that is really going to be, ‘Okay, who are we going to pay?’ and ‘How much are we going to pay them?’," asks Scorsone.

Scorsone says there is one thing the creditors all know – “that Detroit is, you know, insolvent.”

And that, he adds, is in large part, because of pension obligations.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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