Detroit’s Bankruptcy: Following the Retirement Money

The filing resulted from a suit filed by the city’s two pension systems

by Leon LaBrecque

Mr. LaBrecque is the managing partner and founder of LJPR, LLC, an independent wealth management firm located in Troy, Michigan that manages $535 million in assets as of June 30, 2013.  Leon is a practicing attorney, CPA, CFP® and CFA, specializing in investment management, retirement plans, estate planning, and tax planning for over 34 years. Connect with him by e-mail: leon.labrecque@ljpr.com

Troy, MI July 19, 2013 – “The following are 5 important facts about the Detroit Bankruptcy,” says Detroit-area native Leon LaBrecque, JD, CPA, CFP, CFA, Chief Strategist and founder of LJPR, LLC, a Troy, Michigan based wealth management firm with $535 million in assets as of June 30, 2013.

30-90 Day Holding Pattern

“The filing begins a process in which the Bankruptcy Court will determine if the city is even eligible for Chapter 9 protection. This process could take 30 to 90 days,” says LaBrecque.

Strategic Move by Detroit’s Emergency Manager

“This bankruptcy filing was a strategic move by the Detroit Emergency Manager, Kevin Orr. Orr was facing a hearing on Monday, July 22 in the lawsuit filed against Emergency Manager Orr and Michigan Governor Rick Snyder by Detroit’s two retirement systems in an attempt to block a Chapter 9 filing. By filing bankruptcy, all lawsuits are stayed”, said LaBrecque.

Uncharted Territory

This bankruptcy filing was a strategic move by the Detroit Emergency Manager, Kevin Orr. Orr was facing a hearing on Monday, July 22 in the lawsuit filed against Emergency Manager Orr and Michigan Governor Rick Snyder by Detroit’s two retirement systems in an attempt to block a Chapter 9 filing. By filing bankruptcy, all lawsuits are stayed

“These are unchartered waters, the depth of which we haven’t seen before.” says LaBrecque. “We are traveling into the unknown. The Emergency Manager gave Detroit’s creditors the option of dealing with him (the devil they know) or dealing with the Bankruptcy Court (the devil they don’t know).”

Consequences for Pensions?

“The Bankruptcy Court’s decision could potentially have far reaching consequences.  The Michigan Constitution protects municipal pension benefits from impairment. However, if the Bankruptcy Court overrides this provision it could have dramatic consequences for all Michigan municipalities.”

Effects on Municipal Bond Market

“The restructuring proposal classifies Detroit’s unlimited-tax General Obligation (GO) bonds as unsecured. This is not how the Muni Market views GO debt. If Mr. Orr’s classification is upheld by a court of law, it will have far-reaching effects, not just for other troubled municipalities, but the municipal market in general,” says LaBrecque.

LaBrecque stated, “No one knows what happens next, we are anxious to see what the next Chapter is; we think it just might end in Chapter 9.”