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Detroit Bankruptcy Judge Slows Move to Block Filing

Cornelia Schaible/Getty Images(DETROIT) -- U.S. Bankruptcy Judge Steven Rhodes ruled that his federal court will hear Detroit's bankruptcy case, creating an obstacle to the pensioners who challenged the constitutionality of last week's historic $18 billion bankruptcy filing.

Michael Nicholson, general counsel for the United Auto Workers, said the union will decide if it will appeal. Two city pension funds had an emergency hearing on Thursday, saying the state constitution protected the pension benefits.

Judge Rhodes said questions about the city's eligibility to overhaul itself through bankruptcy "are within this court's exclusive jurisdiction." A status conference is scheduled for Aug. 2 for further scheduling and to address the status of negotiations between the city and its creditors.

Last week, circuit judge Rosemarie Aquilina said Michigan Gov. Rick Snyder and Detroit's bankruptcy filing violated the state constitution by threatening the pension benefits for the city's retirees.

Detroit became the biggest American city to file for bankruptcy after its emergency manager filed for Chapter 9 protection on July 18 with more than $18 billion in accrued obligations. In the filing with the U.S. Bankruptcy Court in the Eastern District of Michigan, state-appointed emergency manager Kevyn Orr indicated that the city's estimated number of creditors was "over 100,000." Orr, who was hired in March to assist with the city's budget, had tried to convince creditors to accept pennies on the dollar to deal with its financial problems.

Michael S. Leib, an attorney with Maddin, Hauser, Wartell, Roth & Heller, P.C., in Southfield, Mich., who is not involved in the bankruptcy case, expects the court also will actively promote settlement.

If the bankruptcy filing is approved, Detroit's assets could be liquidated to meet creditor payments.

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