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Detroit's bankruptcy legal wrangling

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Protestors in Detroit last month objected to plans to cut pension benefits of city workers and retirees.

The federal judge overseeing Detroit’s bankruptcy case says he will hold a hearing Wednesday to take up a request by the city’s emergency manager to put on hold state lawsuits challenging the bankruptcy filing.

The new development comes as the legal wrangling over the bankruptcy of the city of Detroit seems to be complicating the case.

The judge, Steven Rhodes of United States Bankruptcy Court, agreed to hold the hearing requested by Detroit’s emergency manager after a state judge ordered Gov. Rick Snyder to withdraw the bankruptcy petition. The reason cited by the Michigan federal judge was that the filing is unconstitutional under Michigan law because it could cut city workers’ pensions.

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have filed lawsuits in Michigan’s capital of Lansing in a bid to derail the municipal bankruptcy made last week.

Gov. Rick Snyder, however, defended the legality of the bankruptcy. The emergency manager, Kevyn D. Orr, had filed a motion asking that the city be protected from litigation as it proceeds with its bankruptcy filing. But the state’s attorney general Rosemarie Aquilina has said the governor cannot take actions that would violate constitutional protections for retirement benefits for public workers.

Detroit, once the hub of America’s automobile industry, is the largest city in the country to have ever filed for insolvency. Its bankruptcy has raised serious worries about the liability of other U.S. cites that are under the burden of huge retiree debt. Red flags have been raised for cities like Chicago, Illinois, Cincinnati, Minneapolis and Portland to name some of them who are grappling with pension shortfall and huge debts.


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