2 - Detroit Bankruptcy: The Characteristics of the Decision Makers and the Differential Benefits Afterwards

Summary

Introduction

On July 18, 2013, Detroit filed for the largest municipal bankruptcy in US history. The city emerged 17 months later with a Plan of Adjustment. This chapter examines: (1) the legal origin of the city's bankruptcy; (2) the summary of oral opinion and reasons why the decision was made for bankruptcy by Judge Steven Rhodes; (3) the characteristics of the decision makers; and (4) the characteristics of the creditors and of winners and losers resulting from the Plan of Adjustment. This chapter is based on a critical examination of the bankruptcy decision, and a Plan of Adjustment that was the resolution. It focuses on the decision makers after discussing that the State of Michigan did not provide full revenue sharing. The most important decision maker was Emergency Manager Kevyn Orr, who wrote the Proposal to Creditors in 2013. Kevyn Orr was born May 11, 1958, in Fort Lauderdale, Florida. He received his law degree from the University of Michigan in 1983 and worked as an Assistant General Counsel for complex litigation and bankruptcy. In 1995 he was the Deputy Director of the Executive Office for United States Trustees, a division of the US Department of Justice that monitors the nation's bankruptcy system (Davey, 2013). In 2001, he was hired by Jones Day International Law firm as a partner, where he advised Chrysler on its bankruptcy. He was also honored as a Fellow of the American College of Bankruptcy.

The Proposal to Creditors document was among the most important documents to use for the chapter. It was relied upon in detail for this chapter. After meeting with 150 invited representatives, Emergency Manager Kevyn Orr wrote that Detroit be authorized to file for relief under Chapter IX of the Bankruptcy Code. The Plan of Adjustment process set forth in the Bankruptcy Code created a mechanism by which Detroit may bind all of its creditors even if all creditors did not assent to the city's restructuring plan (Orr, 2013a: 10).

The case was then turned over to Judge Steven Rhodes and the other key decision makers for their views.