On July 18, 2013, the city of Detroit made history as becoming the largest U.S. city to file a petition under Chapter 9 of the Bankruptcy Code.1 As in many Chapter 9 cases, much of the debate has focused on underfunded pension obligations flowing from Detroit to an array of pensioners. Indeed, in its bankruptcy petition, Detroit reported unfunded pension obligations of approximately $3.5 billion, though the pension plans have suggested that the amount could be significantly less.
On Dec. 5, 2013, over the objections of various pension plans and others, Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan issued an extensive opinion determining that Detroit was eligible to be a Chapter 9 debtor. In doing so, Rhodes made certain findings relating to Detroit’s pension obligations which, if upheld on appeal,2 could have significant ramifications for municipalities seeking to restructure their debt. This article explores Rhodes’ opinion and the effect it could have on municipalities eligible to file for Chapter 9 protection in New York.
