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Automatic Stay Used In Detroit Bankruptcy

Posted by Peter Behrmann, Esq. On July 19th

Automatic Stay Used In Detroit BankruptcyBankruptcy Court

The Automatic Stay is one of the most powerful tools in bankruptcy, so powerful that is stopped an emergency motion hearing that was being held to strip the governor’s power to authorize the filing of the Bankruptcy in the first place.

Here is the time frame on how yesterday worked:

  • Throughout the day there was wide speculation that Detroit would file for Bankruptcy on Friday, the date Kevin Orr indicated months ago he would have his decision by.
  • At 3:37 PM Attorneys representing City of Detroit Pension boards filed an emergency motion seeking a restraining order preventing the governor of Michigan from signing off on the bankruptcy.
  • The emergency hearing was started at 4:11PM where they were informed that the city of Detroit had filed the single largest municipal bankruptcy ever just 5 minuends prior at 4:06PM putting in place the Automatic Stay that prevents any creditor from taking any collection action.

You see in most situations, the actual filing of the bankruptcy case itself automatically stays collection and other actions against the debtor, the debtor’s property, and co debtors.  This means that by simply filing a Bankruptcy you can immediately stop foreclosures, garnishments, lawsuits, and any other collection activity.  Even emergency motions seeking a restraining order from a creditor!

 

Soon all of the Detroit’s creditors will be mailed a notice making them aware that they cannot take the following actions against them:

“Prohibited collection actions against the debtor and certain co debtors are listed in Bankruptcy Code §§ 362 and §§1301. Common examples of prohibited actions include contacting the debtor by telephone, mail or otherwise to demand repayment; taking actions to collect money or obtain property from the debtor; repossessing the debtor’s property; starting or continuing lawsuits or foreclosures; and garnishing or deducting from the debtor’s wages.”

I often use the Automatic Stay in a Chapter 13 bankruptcy to save my clients homes from foreclosure, to save a car that had been repossessed, and to simply help my clients get back on their feet.  I have never had the opportunity to use it to prevent a restraining order from being imposed, but as we saw yesterday that happens to work too!

Peter & Jeri Behrmann are Livonia Bankruptcy Attorneys.  From our Livonia, Michigan location, we represent clients throughout Metro Detroit and beyond, including Garden City, Wayne, Westland, Redford, Dearborn, Taylor, Ann Arbor, Belleville, Northville, Novi, Farmington, Farmington Hills, Plymouth, Canton, and the Counties of Wayne, Oakland, Livingston, and Washtenaw. Our practice is limited to helping consumers like you file Chapter 7 and Chapter 13 Bankruptcy.

DETROIT HEADED FOR BANKRUPTCY?

Posted by Peter Behrmann, Esq. On November 7th

The people of Michigan voted to repeal the emergency manager law.  The repeal is leaving in doubt what will be the next step for struggling governmental bodies throughout Michigan.  The Emergency Manager Law allowed the governor to declare a local government or school district in financial distress and appoint an emergency manager to take control.

 

The emergency manager law which has been controversial from its start allowed emergency managers to amend or remove collective bargaining agreements under certain circumstances.  The supporters of collective bargaining have labeled the law as “Union Busting” and ran a strong and successful campaign to have the law repealed.  The supporters of the emergency manager law urged that the emergency manager process was preventing local governments from filing bankruptcy.

 

Well the supporters of collective bargaining have won, and the next and possibly only choice will now be for distressed local governments to seek Chapter 9 Bankruptcy protection.  Chapter 9 under Title 11 of the United States Code is a chapter of the United States Bankruptcy Code available exclusively to municipalities and assists them in the restructuring of debts.  Chapter 9 is similar to an individual filing a Chapter 13 bankruptcy or a business filing a Chapter 11 bankruptcy.  Chapter 9 allows governmental entities to reorganize their financial liabilities under the laws of the Bankruptcy Code.

 

I almost think that supporters of the movement to repeal the emergency manager law did not understand what they will be getting.  What they could be getting is Chapter 9 Bankruptcy which will put municipalities and local governmental units under the exclusive control of a Bankruptcy Judge. 

 

Within Chapter 9 bankruptcy, labor contracts can be rejected, and pension liabilities can also be eliminated just like the emergency manager law.  Local governments just need to show that the labor contract is substantially detrimental to the government viability and prove they have made a reasonable attempt to renegotiate.  If they can prove that the contracts can be eliminated by the Bankruptcy Judge to make sure the governmental unit is on the right track for financial viability. 

 

The point to all of this is nothing is really going the change.  We may no longer have emergency managers or municipalities under management of the emergency manager law.  We will now have Bankruptcy Judges running municipalities under Chapter 9 of the United States Bankruptcy Code.   

Peter Behrmann is a Livonia Bankruptcy Attorney.  From my Livonia, Michigan location, I represent clients throughout Metro Detroit and beyond, including Garden City, Wayne, Westland, Redford, Dearborn, Taylor, Ann Arbor, Belleville, Northville, Novi, Farmington, Farmington Hills, Plymouth, Canton, and the Counties of Wayne, Oakland, Livingston, and Washtenaw. My practice is limited to helping consumers like you file Chapter 7 and Chapter 13 Bankruptcy.