The first bankruptcy court battle in Detroit’s quest to shed a $20 billion mountain of debt and liabilities will be establishing its eligibility.
After the case gets assigned to a judge in Michigan, Ohio, Kentucky or Tennessee, experts say Detroit’s bankruptcy petition is likely to test the limits of the rarely used Chapter 9 section of the U.S. bankruptcy code.
The city will first have to prove it is financially insolvent, desires to restructure its debt and attempted to negotiate in good faith with creditors for out-of-court settlements, said Michael Sweet, a bankruptcy lawyer at Fox Rothschild in San Francisco who has helped cities avoid bankruptcy.
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