Lawyer: Detroit Case Could Spur Other Cities to File Chapter 9

Wednesday, 30 Jul 2014 08:21 PM

By Sean Piccoli

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A New York lawyer told Newsmax TV on Wednesday that Detroit, by declaring bankruptcy and reaching a settlement that appears likely to gain court approval, has provided a "powerful road map" to other debt-ridden U.S. cities looking for a way out of insolvency.

Ancela Nastasi told "MidPoint" host Ed Berliner that Chapter 9 of the U.S. bankruptcy code "has allowed Detroit to reduce its pension obligations, cut its bond debt by a significant amount, keep its artwork, [and] make its street safe. It's a home run."

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Nastasi, who specializes in restructuring law, said the pension cuts that city employees and retirees agreed to are "small" compared to what Detroit's other creditors agreed to accept as part of the settlement.

The plan to salvage Detroit's $18 billion shortfall still requires court approval, with hearings scheduled to resume on August 14.

But Nastasi said scores of broke municipalities are watching the process with "a little bit of hope that if they do need to file [for protection from creditors], there is a way out of bankruptcy."

She said Detroit's example could erase the stigma of defaulting and allow those cities that meet the legal criteria for a Chapter 9 rescue to feel more comfortable in taking that step.

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