Insights | Blog
Did the City have the right to file Chapter 9?
Today Judge Rhodes will start to hear arguments from the City and opposing parties (creditors). The big issues are; did the City meet the requirements for a Chapter 9 filing? The two big requirements are financial duress (insolvency) and did they bargain in good faith? The other issue is the states’ permission to file. The best issue for the opposing parties who will make arguments on all three issues is whether the City bargained in good faith. There is no bright line test on what is “good faith”. I think the Judge will rule the filing was legal. It is just a guess. The issues within Detroit are enormous because of the number of stakeholders. To have the fight over constitutional requirements, economics and other legalities in one place, bankruptcy court, will take a lot of expense, uncertainty and time out of the process. This is the practicality of it although not a legal reason. I expect the fight to be contentious, but it is only Round 1.