Detroit bankruptcy: Court fight begins over pensions

WASHINGTON — While a legal battle has begun over whether Detroit can use bankruptcy to slash city pensions, an effort has been launched in Congress to hold hearings into what one lawmaker said is the “increasing use” of bankruptcy by municipalities.

Detroit Congressman John Conyers Jr., the top Democrat on the House Judiciary Committee, asked Committee Chairman Robert W. Goodlatte (R-Va.) to call hearings, expressing concern that bankruptcy is being “misused” to deny about 30,000 current and retired Detroit workers their pensions.

“Certainly people are very fearful,’’ Rep. Gary Peters, a Democrat who also represents Detroit, said in an interview.

Detroit city pension funds sued Republican Gov. Rick Snyder and the city’s emergency manager, saying that bankruptcy could not be used to reduce the pensions of about 30,000 current and retired workers to help ease the city’s $18-billion debt. They contended that the pensions are protected by the state constitution.

“I feel very betrayed,’’ Metro Detroit AFL-CIO President Chris Michalakis said in an interview, “and I know a lot of workers in Detroit feel that way, too.’’

Ingham County Circuit Judge Rosemarie Aquilina on Monday put off a hearing until July 29 on the lawsuit brought by the pension funds.

Some legal experts contend that federal bankruptcy law trumps state law.

In the meantime, the federal judge overseeing the bankruptcy case, Steven W. Rhodes, set a hearing for Wednesday on Detroit emergency manager Kevyn Orr’s request to put lawsuits challenging the bankruptcy on hold.

Conyers said that congressional hearings should examine, among other things, whether bankruptcy can be used to override state constitutional pension guarantees.

The issue, he said, is significant “not only to the financial community but to all Americans who transact business with, work for, and live in municipalities across the United States.”

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richard.simon@latimes.com