By STEVEN YACCINO
Before Detroit can start remaking itself in bankruptcy court, there is a basic question that stands in its way: Does it even qualify?
That might seem like an odd notion in a place wrestling with an estimated $18 billion debt. But unions, creditors and retirees are expected to file formal objections to Detroit’s eligibility for bankruptcy protection before a Monday deadline, the opening of a legal fight over whether the largest municipal bankruptcy in the nation’s history should proceed.
“This is just getting your ticket punched to get in the door,” said Michael A. Sweet, a bankruptcy lawyer with Fox Rothschild in San Francisco. A trial to consider Detroit’s eligibility for bankruptcy is scheduled for Oct. 23.
To meet the criteria for municipal bankruptcy, known as Chapter 9, Detroit must convince Judge Steven W. Rhodes of federal bankruptcy court that the city is insolvent. It must also show that it received state authorization to seek bankruptcy protection and that it made a good-faith effort to reach a deal with creditors before seeking bankruptcy.
The deadline for filing eligibility challenges is 11:59 p.m. Eastern time Monday. By Sunday evening, only a handful of objections had been submitted.
Since 1954, there have been only 63 Chapter 9 filings that dealt with cities, towns, villages or counties across the country, said James E. Spiotto, a bankruptcy specialist based in Chicago at the law firm of Chapman and Cutler. Of those, 29 cases were dismissed for reasons that included ineligibility, he said….