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Judge: Detroit OK’d for bankruptcy, pensions can be cut

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The city of Detroit first filed for bankruptcy protection in July, and on Dec. 3 made the record books as the largest city in U.S. history to ever be approved for bankruptcy.

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USA Today reported:

The landmark ruling ends more than four months of uncertainty over the fate of the case and sets the stage for a fierce clash over how to slash an estimated $18 billion in debt and long-term liabilities that have hampered Detroit from attacking pervasive blight and violent crime.

U.S. Bankruptcy Judge Steven Rhodes spoke today for 90 minutes in delivering his ruling, saying that "the court finds that Detroit was and is insolvent," and “this once-proud city cannot pay its debts.”

The judge called upon the masses to look at the ruling’s potential bright side as an opportunity for a fresh start for Detroit.

Rhodes said earlier that his decision about including pay cuts to city pensioners would be an issue he’d rule on later – but surprised everyone by stating today that that pension cuts can be part of the bankruptcy deal.

"Resolving this issue now will likely expedite the resolution of this bankruptcy case," he said.

According to Rhodes, it is now the city’s task to come up with a plan that equitably “treats all creditors fairly.”

"Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy," Rhodes said.

It’s fully expected that the judge’s ruling today will be appealed by Detroit’s retirees, creditors, and unions.

Detroit must now work towards developing a plan restructuring its debt and its municipal operations before the end of the year. That new restructuring proposal will likely include cutting payments to creditors and selling off some municipal assets.

Realizing that his ruling paved the way for Detroit to become the largest U.S. city to ever enter bankruptcy, Judge Rhodes concluded his statements today by saying, "it is indeed a momentous day."

For more on the Motor City filing for bankruptcy, see the video accompanying this article.

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