Detroitâ€™s bankruptcy trial recently commenced. This trial is expected to last for five weeks and deals, in part, with objections to the proposed settlement. Two of the cityâ€™s creditors do not want their debt restructured, but the city claims these creditors have a lower payback priority than the cityâ€™s pension funds.
The city has $18 billion in debt, according to a September 6, 2014 Economist article. That is a whopping $26,000 per resident. As a result of the cityâ€™s lack of funds, some parts of the city are in a state of disrepair. Additionally, there are many empty buildings. These and a few other factors are reason to ask if bankruptcy will be enough to get Detroit back on its feet.
Surely restructuring the massive amount of debt the city has will be helpful, but it will not provide the income that the city needs to grow and revitalize. Detroit will have a difficult time raising revenue through property taxes as home values have halved in the past ten years (meaning property taxes will raise less money than before). Furthermore, casinos in the city are making less money, meaning that the city gets less money as well.
One situation the Economist cites as a reason the city is having a hard time with its finances is the water and sewer departmentâ€™s finances. This department is in deep in debt, but has a very hard time collecting money that is owed. Pipes are in disrepair, and some buildingâ€™sâ€™ basements are even flooded. The department finally resorted to turning off some peopleâ€™s water, which created an outcry. If Detroit is having trouble collecting money owed on water bills, then how will it raise money to run the city?
It should be noted, however, that, as reported in the Christian Science Monitor on September 2, 2014, the bankruptcy agreement will raise some money. The city will sell some of its art collection to a non-profit group that may then transfer the art back to museums. The may sound like a circular path, but these art assets will help Detroit pay its bills. Now, the question is, after months of negotiations, how will the city fare after bankruptcy provided that it is approved?
If you are considering filing for bankruptcy, then you should consult with an experienced attorney. Jayson Lutzky is a lawyer in the Bronx, New York with over 31 years of legal experience who handles personal bankruptcy cases. He offers free in office consultations. To set up an appointment, call 718-329-9500. Appointments are available Monday – Friday, 9-5, and Saturdays 10-2. Visit www.MyNewYorkCityLawyer.com for more resources.