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Federal judge clears way for Detroit bankruptcy case

Federal bankruptcy judge Steven Rhodes issued a stay Wednesday on all litigation against Detroit during the city's bankruptcy. Rhodes asserted that his court has exclusive jurisdiction [Reuters report] over the case [materials]. While Wednesday's decision did not determine whether Detroit will ultimately receive Chapter 9 protection, it allows the case to proceed on the merits and gives Rhodes the ability to determine issues raised by retired public employees [NYT report] with respect to their pensions. In order to grant Detroit bankruptcy protection, Rhodes must find [LAT report] that the city is insolvent, that it is authorized by state law to file for bankruptcy and that it has acted in good faith with creditors.

Detroit's bankruptcy is the largest bankruptcy filing in the nation's history and the first time a municipality has filed. The filing prompted numerous lawsuits challenging the bankruptcy under the Michigan Constitution [text], which bans any action that threatens to cut the benefits of public employees. On Friday, a judge for Michigan's Ignham County Circuit Court ruled [JURIST report] that the bankruptcy is unconstitutional and must be withdrawn, which prevented Governor Rick Snyder and Detroit Emergency Manager Kevyn Orr from taking further action regarding the bankruptcy. Wednesday's decision supersedes the state court ruling.

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