(Photo: Carlos Osorio, AP)
DETROIT - Detroit is insolvent and eligible for Chapter 9 bankruptcy, a federal judge ruled Tuesday.
U.S. Bankruptcy Judge Steven Rhodes' decision sets the stage for a battle over pension reductions, the potential sale of assets and proposed cuts to creditors.
"The city needs help," Rhodes said. "The city no longer has the resources to provide its residents with basic services."
Because of Rhodes' ruling, the city becomes the largest municipality in the USA to go through the bankruptcy process.
In his comments from the bench, the judge signaled that he also will allow pensions to cut in Detroit's bankruptcy.
"Resolving this issue now will likely expedite the resolution of this bankruptcy case," said Rhodes, contending that nothing distinguishes pension debts from other debts despite language in Michigan's constitution that is meant to protect the government retirement plans.
However he said that he would not approve a bankruptcy reorganization plan with steep cuts.