A federal judge has ruled Detroit is eligible to file for the nation's largest Chapter 9 bankruptcy to help dig out from under $18 billion in debt and that city pension payments can be cut to help make that happen.

U.S. Bankruptcy Judge Steven Rhodes determined the city meets the criteria for bankruptcy, ruling the city is financially insolvent and that the filing was properly authorized. He dismissed challenges to Michigan'��s emergency manager law and ruled that pensions are not protected by the state Constitution.

"��The case was filed in good faith and should not be dismissed,"�� Rhodes said from the bench.

More significantly, Rhodes ruled that Detroit pensioners do not have any additional protections outside of normal contract rights to their benefits. He said the city could slash those benefits, though he had a warning for Emergency Manager Kevyn Orr.

"The court emphasizes that it will not lightly or casually exercise federal bankruptcy law to impair pensions,"�� Rhodes said.

Rhodes concluded the city did not negotiate in good faith with its creditors, a key point of contention in the eligibility fight. The judge was sympathetic to creditors'�� complaints that they did not get a reasonable chance to respond to the city's proposals.

But Rhodes said good faith negotiations were not necessary because of the sheer number of creditors - more than 100,000 -�� and the fact some labor unions and retiree groups refused to agree to pension cuts, making it "impracticable"�� for Detroit to negotiate with them all.

"The sheer size of the debt and the number of creditors made pre-bankruptcy impractical, impossible really," the judge said.

Citing a similar finding in the Stockton, Calif. bankruptcy, the judge later added: "It'��s impractical to negotiate with a stone wall."��

From The Detroit News:



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