Detroit can enjoy the protections of bankruptcy, including immunity from lawsuits related to the case, a federal judge ruled, extending that shield to Michigan Gov. Rick Snyder.
U.S. Bankruptcy Judge Steven Rhodes in Detroit on Wednesday overruled challenges from public employee groups and pension funds that claimed the state had overreached in seeking court protection from creditors. The eligibility of the city to remain under bankruptcy protection will be determined in federal court in the coming months, not state court, Mr. Rhodes said.
“State court proceedings may well have an impact on the bankruptcy case here and administration of this case or the debtor's assets,” he said.
Detroit filed for bankruptcy protection July 18, citing $18 billion in debts. Chapter 9 of the U.S. Bankruptcy Code, which covers municipalities, typically prevents creditors from taking actions against the debtor that might interfere with reorganization.
Pension funds for retired city workers sued in state court to have the bankruptcy filing declared unconstitutional. Efforts to reverse decades of economic decline are threatened by such lawsuits, a city attorney told Mr. Rhodes.
The judge said that granting the so-called automatic stay “assists the court in making the bankruptcy process more efficient and gives the court control over all of the issues that will have to be resolved through the course of the bankruptcy.”
