A judge for the US Bankruptcy Court for the Eastern District of Michigan on Wednesday ordered Detroit to renegotiate its bankruptcy-related financing with UBS and Bank of America [corporate websites]. Judge Steven Rhodes found that the deal, which required Detroit to pay the banks 75 percent of its debt to those firms, was too generous for the banks [Detroit Free Press report]. Rhodes indefinitely suspended the trial, encouraging Detroit to seek better terms. The parties will appear back in court on Friday to discuss the status of the negotiations [Reuters report].
Earlier this month Rhodes ruled that Detroit is eligible and authorized to file for bankruptcy [JURIST report], declaring the city insolvent because it owes approximately $18 billion to more than 100,000 creditors, which is harming the city's residents and making it essentially impossible for the city to negotiate with creditors. In July Rhodes allowed [JURIST report] Detroit's bankruptcy filing to continue, declaring that his federal bankruptcy court had exclusive jurisdiction over the matter. This action placed a stay on a Michigan circuit court ruling that had been announced three days earlier, which declared the filing unconstitutional [JURIST report] because it threatened public pension benefits and those benefits are protected by the Michigan Constitution [text, PDF]. Earlier this fall JURIST guest columnists Patrick Brady and Igor Shleypak discussed how Detroit's pension plan holders have been fighting for their rights in this case and explored the broader consequences [JURIST op-eds] that Detroit's actions may have on other cities that consider filing for protection under Chapter 9.