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Is Detroit eligible for bankruptcy?

Individuals filing bankruptcy, whether through Chapter 7, 11, or 13 protections, must show that they are eligible to file bankruptcy and that particular chapter, or type, of bankruptcy. The means test helps determine what chapter of bankruptcy an individual is eligible for. The City of Detroit has filed for Chapter 9 bankruptcy, the type of bankruptcy that municipalities in the US can file under. Recently, the federal bankruptcy judge assigned to the case held a trial lasting nine days to determine if the city is eligible for bankruptcy. He heard arguments supporting each side according to a November 8, 2013 Chicago Tribune article.

Municipalities must show that they have carried out good-faith negotiations with their creditors before filing for bankruptcies. Representatives of pension groups and retirees, which are creditors to the city stated that the city did not spend enough time negotiating with these groups before filing papers, whereas the city said there simply was not enough time and that it did its best given the time constraints. Pension funds have a lot to lose in Detroit’s bankruptcy. If the debts owed to them are wiped away, then pensioners will not be able to receive their full pensions. Still, if Detroit does not file bankruptcy, then, “the health, safety and welfare of the people… are at risk,” according to the lawyer representing the state of Michigan.

Detroit will also have to show that it is insolvent. A municipality is insolvent, according to Avvo.com under the United States Bankruptcy Code §101(32)(c), when it does not pay its debts “as they become due.”

If you are considering filing for a personal bankruptcy, then you should contact an attorney. Jayson Lutzky is a New York lawyer offering free in person initial consultations. He has 30 years of experience and is ready to meet with you to help you determine if bankruptcy is the right option for you. To learn more visit www.MyNewYorkCityLawyer.com or call 718-329-9500.

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