July 19, 2013

From ABC News

A judge ruled Detroit's bankruptcy filing violates the Michigan Constitution, though the state attorney general said he will appeal the decision.

Detroit became the biggest American city to file for bankruptcy after its emergency manager filed for Chapter 9 protection on Thursday with more than $18 billion in accrued obligations. In the filing with the U.S. Bankruptcy Court in the Eastern District of Michigan, state-appointed emergency manager Kevyn Orr indicated that the city's estimated number of creditors was "over 100,000." 

Randye Soref, an attorney with law firm Polsinelli, said the chances of the bankruptcy not moving forward and being declared unconstitutional "are slim to none." Soref said that the state constitution includes a prohibition against taking any action that would modify pensions.

"In Chapter 9, however, the municipality has the absolute right to modify pensions, reject collective bargaining agreements -- without meeting any protections that would arise in Chapter 11 -- and wage and severance claims are afforded no priority," she said. "I think the bankruptcy code as a federal statute will trump the state statute. The whole rationale behind Chapter 9 and the limits on court involvement that a debtor has in Chapter 11 is to allow the sovereign the breathing room it needs to rearrange and adjust its debts, thereby allowing it to govern."

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About Randye Soref

Ms. Soref focuses her practice on bankruptcy, creditors’ rights, corporate workouts, reorganizations and commercial litigation. Ms. Soref represents all classes of creditors in bankruptcy proceedings, including both solvent and insolvent financial institutions.

Ms. Soref also routinely represents domestic and foreign commercial banks, investment banks, other lending institutions and distressed debt investors in connection with the acquisition and disposition of distressed real estate within formal bankruptcy reorganizations as well as "out of court" workouts. Ms. Soref's services include loan workouts, negotiating and documenting debtor-in-possession financing, all aspects of plan confirmation, obtaining relief from the automatic stay, successfully obtaining pre-judgment writs of attachment, appointment of receivers, non-judicial and judicial foreclosure of real and personal property collateral. Ms. Soref counsels institutional clients on credit documentation, collection efforts and other credit matters.