Detroit’s Bankruptcy and the Law
Detroit The City of Detroit filed for bankruptcy this month, making it the largest municipal entity in the country to ever do so. This has created a number of interesting and new legal problems for bankruptcy lawyers. Since I’ve taught the course in Debtor-Creditor Law for 40 years, and have written a textbook (with Professor Jeffrey Morris of the University of Dayton) on the subject, I thought I’d take a stab at explaining the difficulties for those of you who are not lawyers. Bankruptcy is a federal matter, and the United States Bankruptcy Code is divided into various “Chapters.” Most individuals and businesses file a Chapter 7 bankruptcy, which is a liquidation proceeding in which the debtor surrenders all non-exempt assets and then is forgiven (“discharged”) from liability on most (but not all) debts. Businesses in Chapter 7 do not get a discharge; they are liquidated and simply cease to exist. Individuals can file a Chapter 13, which allows them to pay off m