Municipal Bankruptcy and Public Pensions: Detroit\u27s Eligibility for Chapter 9 Relief and Legal Restraints on the City\u27s Actions as a Debtor

Abstract

This Note will seek to address the constitutional and statutory issues raised in the early stages of Detroit’s bankruptcy. Part I will briefly address how Detroit reached the point where municipal bankruptcy became legally possible and politically attractive. It will examine population trends in the city, changes in the character of Detroit’s major industries, and the deterioration of city services. Part II will provide background information about the history of municipal bankruptcy in America and the constitutional challenges that it has faced. It will attempt to give a base from which to examine the major issues raised by Detroit’s case and how they might fit into the history of municipal bankruptcy and America’s system of federalism. Specifically, it will address the Supreme Court’s decision in United States v. Bekins and some of the cases that have followed. Part III will dive into the issues raised by objectors to Detroit’s filing. While the objectors have raised at least thirteen distinct objections to the filing, this Note will concentrate on three. First, an effort will be made to demonstrate that contrary to some of the objections raised in the Detroit case, Chapter 9 is facially constitutional. Next, it will examine Michigan’s authorization of Detroit’s bankruptcy petition in accordance with § 109(c) of the Bankruptcy Code. It will argue that Public Act 436, the Michigan law that authorizes municipal bankruptcy and sets out the procedures that must be followed to file under Chapter 9, is constitutional and that the filing in this case complied with both federal and state law. It will also argue that Chapter 9 is constitutional as applied to Detroit, and that the protections present in Chapter 9 do more than enough to overcome any potential Tenth Amendment issue in Detroit’s filing. Finally, it will argue that, due to the Bankruptcy Code’s incorporation of state law property definitions, public sector pensions may not be reduced in Michigan by any means, including Chapter 9 bankruptcy