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Detroit’s creditors may fight insolvency

DETROIT — Banks, bond insurers, employee pension systems, and others standing to lose big if a federal judge declares Detroit insolvent are expected to file their objections to the largest municipal bankruptcy in US history.

Monday is the deadline for creditors to file eligibility objections to Detroit’s bankruptcy petition — marking the beginning of legal challenges for those hoping to recoup all or most of what Detroit owes them.

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

Conversely, it also could spell disaster for the struggling city if its petition is denied, allowing creditors to sue Detroit if it defaults on payments, said bankruptcy expert Doug Bernstein.

State-appointed emergency manager Kevyn Orr filed for bankruptcy protection 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.

Orr stopped payment on $2.5 billion in debt in June.

By filing, Orr prevented a mad rush by worried creditors, who could have sued Detroit to collect their money.

A multi-day hearing on the eligibility question is scheduled to start Oct. 23.

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