Creditors protest Detroit bankruptcy

Bond holders, insurers, banks, employee pension funds, individuals and companies have until just before midnight to file objections
Associated Press
Aug 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 — have 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.

"Hopefully, we'll have the opportunity to argue why Detroit should not be allowed to go into bankruptcy," said the Rev. Charles Williams II, Michigan chapter president of the National Action Network, a grassroots organization that opposes the state's emergency law.

Williams told reporters outside federal court before the group went inside to file objections that the forms arrived last week to the homes of some of the group's members.

The group is being advised by a former corporation counsel for the city.

"The emergency manager made no reference to this," Williams said of the forms being mailed to city residents. "Two or three business days to file a legal objection is not fair to the people of Detroit."

Sending the forms to individuals who may be creditors is part of the process and was authorized by Orr, according to his spokesman Bill Nowling.

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."

Detroit residents, so far, have been left out of the bankruptcy process, said Randy Heard, a 52-year-old unemployed gas utility worker.

Heard, a National Action Network member, also expected to file paperwork Monday objecting to Orr's bankruptcy petition.

"We don't have a voice. They didn't give us a chance to speak," Heard said. "Our (elected) leaders said we don't want a bankruptcy. Democracy has been shut down in Detroit."

Another group also protested Orr's bankruptcy filing. About 100 city retirees marched outside federal court. Some carried signs stating: "STOP DEBT SERVICE to BANKS that DESTROYED DETROIT."



The Hero Zone's picture
The Hero Zone

"We don't have a voice. They didn't give us a chance to speak," Heard said. "Our (elected) leaders said we don't want a bankruptcy. Democracy has been shut down in Detroit."

I certainly feel badly for everyone in Detroit because of what it is going through. It is tough and scary to say the least and maybe it is easy and selfish to say but I am glad I don't live there right now. There are certainly some great opportunities to be had there and the city can turn into a great economic zone if done properly.

But, my contention with the quote above is simply...where was your voice before this happened? That isn't even "you" as a citizen. How did the mayor/council handle public discussion and open to/implement suggestions? How many years of multi-million/billion dollar deficits rolled by with no word nor action taken to address it? If democracy was shut down in Detroit it happened years before this circumstance from either an ignorant/complacent constituency or from an ignorant/complacent leadership. Given the recent scandals (or the fact I believe I heard several council members picked up their toys and went home when the manager was appointed) if we called anything 51-49 it would be the latter.

I honestly don't know if bankruptcy is the right thing here, but desperate times call for desperate measures. I do know that I am paying attention and learning from this as I hope many other people and cities are.


If this bankruptcy goes through successfully there will more cities to follow. Deficit spending has consequences, I'm not saying all deficit spending is bad, for example some of the US stimulus meant well, but you have to pay off debt in good times so that when tough times hit you can spend more to get a local or national economy going. The problem with Detroit and the US is there is never a meaningful attempt to pay down the debt and it grows exponentially. I also see a problem of elected officials negotiating with the public unions that support and elect them.


"I'm not saying all deficit spending is bad, for example some of the US stimulus meant well, but you have to pay off debt in good times so that when tough times hit you can spend more to get a local or national economy going. "

The Keynesian economic theory wanted gov't stimulus during downturns in the economy and cuts in spending during good times. Problem is when the good times come around they want MORE gov't spending because the times are good. The DEBT never goes down. Notice I used DEBT... not deficit. The theory has never been followed through cause the wingnuts never want to cut spending (actual cuts, not reductions in the increases)... good times or bad... so it is considered a failed proposal since the tenets of the theory won't/can't/aren't followed in the real world.


There in lies the problem, the Keynesian economists spend all the time while the Austrian economists understand that there are limits on what governments can do. Until we (the US) and other nations get this whole idea of central banking and fiat currency out of the system we will continue to see local, state and national debts running out of control. I know my progressive friends mean well, they want to protect and help those less fortunate, but until we can get back to a system of "honest money" a currency that is backed by gold, silver, oil or something the only ones that will benefit are those that have money. We can't continue to borrow against future generations to sustain a system that is unsustainable. My message to my progressive friends is to end the Fed and the fractional reserve banking system we are currently using and make the creation of money to benefit all of us, not those in banking sector. Can I at least get BigDog, 4shizz and coasterfan to agree with this? If you want a fair chance at the American Dream, stop the devaluation of our currency.

Peninsula Pundit

I will write my Un-progressive congressmen controlling the house to do as you suggest.
I expect the same result as when I wrote the progressive ones, requesting the same thing.
The Fed is a member bank of multi-national corporations.
Without them, they cannot keep control of multi-national events and populaces.
The devaluation of the US currency is part and parcel of their plans,which, having read the many posts by those of your ilk here, you tacitly support. (Business is good and always right. Little-people are poor and don't know what's good for them, et al.)
You live in the dream of a world long-past if you can't read the international headlines and realize those days of the American Dream are long gone and will not be returning in your lifetime.
Everyone knows it, as evidenced below:
Ask someone how they're doing, and how often do you hear the reply,
'Livin' the Dream!'?
And more times than not, that comment is spoken sardonically.


You are right that the American dream will not return in my lifetime. Until people wake up and realize the system is rigged against them the "big lie" will continue. Congress needs to take back what is their, the issue of currency or we as a nation are doomed. International banksters are ruining the planet, until the creation of currency is for the good of the people and not as debt all nations will follow Greece, Cyprus, et al.

Darwin's choice

Years of Democratic leadership, failure for decades. Now, who would they like to blame?


Where is Al & Jessie?

Tool Box

They are still pissed about the Zimmerman trial! They have no time for real business!

Mr Bean

Al, Jessie, look under the desk---maybe "Oblameo" will step up and spend some freshly printed inflation to solve the problem. Just as soon as he finds a scapegoat. Did G.W. ever visit Detroit? Maybe when the Rangers were playing in town?

2cents's picture

So what, I have customers that have never paid, I invested in World Com for part of my retirement and they went belly up. Sometimes you loose, you just have to try to do the safe thing for the future. Just lost a 27 year customer to China, can't do shirt about that, just move on and hope big brother government stops digging deeper into your pocket!


Re: "Just lost a 27 year customer to China,"

My sincere sympathies.

As my late Father-in-law used to say:

The nerve that's connected to the hip pocket controls the body.

As a mildly conservative investor, my advice on a World Com or any single holding:

NEVER make it more than 5% (or 10% "depending") of the total of a portfolio.

Do an annual review and if it's grown more than five, sell down (buy low, sell high).

5% losses tend to be one h*ll of a lot easier to recover from.


I agree on the individual stocks. Last I had was Apple... I sold out when Jobs died. He was the founder and driving force that could get things done. He steered that supertanker through the rapids, when he died I was out of apple within 2 weeks.

I prefer Mutual Funds. If you stay within the Fund "family" you can make a call and be in something completely different, for no charge, if you think one not doing well, or into a money market if you think the economy is taking a dump.

Only thing I really took a chance on was gold a couple years ago. I got out 2 weeks before the floor dropped out, by pure luck. I just couldn't see gold continuing to increase. I had near 75% of my non-retirement savings in physical gold and went to zero in 3 days. I was lucky. Never again. That was my one time I overloaded in one thing.


Re: "physical gold"

Own (GLD). <2% of my total investible assets.

IMO, one of the best investment books:

2cents's picture

"NEVER make it more than 5% (or 10% "depending") of the total of a portfolio."

Its ok, I gave my X all my investments and the house in the settlement : )


In a battle between debtors and creditors, the latter is generally the loser.

The result: Future borrowing costs will go northward.

Unlike the U.S., Detroit just can't print money.

An interesting battle is brewing between the city's pensioners and the bankruptcy filing.

Peninsula Pundit

I believe the retirees should be taken care of.
They worked all their lives for a pension.
You can't just say, 'Oh well, go back to work.'
What kind of hardship did the bankers suffer after they drove the whole US economy into the ground?
So, why should these 23,000 current retirees have to suffer now?
The salary of one banker could pay all these pensions with money left over.
You posters here may want to delude yourselves that your status is closer to a bankers, so that's why you talk like one here.
The truth is, you're a way lot closer to the pensioners who are looking at having your retirement taken away by monied interests who don't give a good darn what happens to you.


Re: "I believe the retirees should be taken care of."

Usually not a problem for public employees.

Unlike private sector health and welfare benefits, the public sector's tend to be constitutionally guaranteed by state and local taxpayers.

There's a lawsuit comin'.

Peninsula Pundit

Aren't you keynesian-types and union-hating posters here aware that many of the retirees who are looking at losing their retirement are veterans,firemen, police and first-responders whom, on other boards, you loudly proclaim as 'Heroes'.

'Thank You for Your Service!',you crow.

Now you're OK with taking their pensions away when they can no longer serve?

That says more about your false-hearted 'thanks' for their service than anyone can post.


DETROIT a Good exampe.
Private Unions Built the METROPOLIS Detroit.
Public Unions tore down the Once Great METROPLIS Detroit.
and continue to strip the land.
Does little Detroit have a clue??


If government bails out this city there will be plenty more to follow.

Please understand you are the government. The government has no way to generate income other than through taxes.

Are you willing to reach in your pocket to save Detroit? Are you willing to reach in your pocket to make other cities, counties and other government agencies solvent?

How do you remain solvent with the constant and never ending drain on your financial resources by government?

JudgeMeNot's picture

Obama said during his last campaign, Quote: "Mitt Romney will let Detroit go bankrupt".

"Can we help Detroit? We don't know," Vice President Joe Biden.

This president and you Dems are clueless. Obama is forgetting Detroit now because he doesn't need to buy any more votes from the UAW.

Detroit + Democrats + Unions = Bankruptcy = Laughingstock of America.


VP Biden 2012: "bin Laden is dead, Detroit is alive!"

Reality 2013: al-Qaeda is alive, Detroit is BANKRUPT.


Detroit will not learn a lesson if the government bails them out. All it would be doing is bailing out the unions and their benefits. Detroit didn't pay attention with the spending. They spent like there was no tomorrow and the taxpayer should help them out? The unions have caused most of the financial problems in any cities. The bankruptcy will be happening to more cities.


The cities unionized workers elected the union leaders (reps, BA's and such). The union leaders were in charge of the pension funds. If there was a problem with funding the union pension funds who were the ones who were supposed to be watching out for the cities union members? The union leaders. Who was at fault for not watching out for the cities union members?

In the union I am/was a member of we were given the pension audit twice a year, and an independent audit once a year. That is how it should be done from a union that keeps up with the times, and takes care of its members. This did not happen in a vacuum. It did not happen in a short time, it took decades. Did no one in charge of the union never look at the pension funding?


Re: "The union leaders were in charge of the pension funds."

States like IL didn't fund them some yrs. Can pretty much imagine that Detroit did something similar.


"This entire structure of promising pensions on the assumption that they can just always raise taxes is destroying society on a grand scale precisely for the same reasons Rome fell – unfunded liabilities caused by promised pensions for state workers."


The under funding or not funding of the pensions should have been the top priority of the union leaders AND the gov't entities that oversaw the pensions. Those are the people and/or organizations that should be held responsible to make the union workers whole. So whatever union that the city workers belong to is the deep pockets in this case. Ask any lawyer who gets tapped for payment when sued... the deep pocket. Detroit has nothing, the workers have nothing, the union... they may have to not donate to political candidates for a few election cycles.