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Judge to rule on Detroit bankruptcy petition on December 3

The word "Bankruptcy" is painted on the side of a building in Detroit, Michigan October 25, 2013. REUTERS/Joshua Lott
The word "Bankruptcy" is painted on the side of a building in Detroit, Michigan October 25, 2013. REUTERS/Joshua Lott

By Joseph Lichterman

DETROIT (Reuters) - The judge overseeing Detroit's historic bankruptcy petition set December 3 as the date for issuing his decision on whether the cash-strapped city qualifies as bankrupt under federal law, according to a court filing posted Monday.

U.S. Judge Steven Rhodes will hand down his ruling in federal bankruptcy court in Detroit at 9 a.m. EST on that day. A written decision will be available shortly afterward, the court filing said.

No matter how Rhodes rules, it is expected that his decision will be appealed. Rhodes also is considering a request from one of the objectors, the American Federation of State, County and Municipal Employees, Detroit's largest union, which asked the judge earlier this month to allow any appeal to go directly to the U.S. 6th Circuit Court of Appeals, bypassing the U.S. District Court in Detroit.

Rhodes' ruling will cap months of anticipation, since Detroit filed its bankruptcy petition on July 18. During a nine-day trial that wrapped up on November 8, Detroit sought to prove that it is bankrupt.

Under Chapter 9 of the federal bankruptcy code, it is Detroit's burden to prove it is insolvent, it had proper approval to file for bankruptcy and that it negotiated in good faith with creditors or that negotiations were impractical.

The city's unions, public-sector retirees and two pension funds have objected to Detroit's bankruptcy filing, arguing that Kevyn Orr, Detroit's state-appointed emergency manager, purposely drove the city into bankruptcy court and did not negotiate with creditors for an out-of-court settlement.

The trial included a rare appearance from a sitting governor on the witness stand as Michigan Governor Rick Snyder, who approved the city's bankruptcy filing, testified. Orr also testified along with a long line of other government officials, consultants and union leaders.

City lawyers argued during the eligibility trial that Detroit acted in good faith prior to the bankruptcy filing, but that negotiations were impractical because of the large number of creditors and an unwillingness on the part of union, retiree and pension fund negotiators to make concessions.

Bruce Bennett, one of the city's lead bankruptcy attorneys, said in his closing arguments earlier this month that the city recognized it would be nearly impossible to negotiate with creditors, but decided to try anyway.

"You absolutely can believe in your head that this is never going to work, but try anyway," he said. "And I think that is the situation in this case."

With $18.5 billion in debt and liabilities, Detroit is the largest U.S. city to file for bankruptcy. Its liabilities include $5.7 billion for healthcare and other obligations, and $3.5 billion involving pensions, the city says.

The unions, retirees and pension funds have argued that Michigan's constitution protects city pensions from being cut, but Orr has said pensions are likely to be reduced as part of the city's restructuring.

Bankruptcy opponents also argued Detroit rushed into court without providing enough time or information to facilitate negotiations between the city's release of its initial proposal to creditors on June 14 and when it filed for bankruptcy in July.

(Reporting by Karen Pierog; writing by Dan Burns; editing by James Dalgleish and Matthew Lewis)

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