Michigan AG Appeals Court Order Blocking Detroit Bankruptcy

The judge on Friday sought to block the Motor City's Chapter 9 federal bankruptcy filing.

A circuit court judge has ruled that Detroit's bankruptcy filing violates the state's constitution and laws and must be withdrawn, but Michigan's attorney general has already appealed the decision.

In a ruling on Friday, a day after the city became the largest municipality in history to declare bankruptcy under the federal Chapter 9 rules, circuit Judge Rosemarie Aquilina ordered the Motor City's filing stayed pending appeals.

"I have some very serious concerns because there was this rush to bankruptcy court that didn't have to occur and shouldn't have occurred," Aquilina said, according to The Detroit Free Press.

"Plaintiffs shouldn't have been blindsided," she said.

Detroit, which has suffered serious erosion of its population and tax base in the last decade, is estimated to owe some $18.5 billion in debt and liabilities stemming mostly from pensions to public employees. The city made the filing on Thursday in the U.S. Bankruptcy Court in Eastern Michigan.

Aquilina said the Michigan Constitution bars any action that would reduce public pensions. She said that Gov. Rick Snyder and Kevyn Orr, Detroit's state-appointed emergency financial manager, violated the constitution when they filed for bankruptcy because they were aware that the result would be reduced pension benefits.

Attorney General Bill Shuette's office says it's already appealed the decision:

"In addition, the Attorney General filed motions to stay the trial court rulings and any future proceedings while the appeals proceed," spokeswoman Joy Yearout said. "Later today, we expect to file additional motions seeking emergency consideration."

"My sense is that federal law trumps state law in this case," says Mike Lafaive, an expert on Detroit's finances at the Mackinac Center for Public Policy.

Lafaive says he's "confident that Bill Schuette knows what he's doing and that his appeal would be on solid legal ground."

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