The city of Detroit plans to begin distributing the last $10 million tranche of debts owed in its 2013 bankruptcy to unsecured claimants before seeking a court order to close the books on its historic municipal insolvency and reorganization.
Attorneys for Detroit plan to submit a motion by Wednesday for a final decree in the case in the U.S. Bankruptcy Court for the Eastern District of Michigan, which would close the court case, city spokeswoman Stephanie Davis said.
The expected filing comes as Detroit on Thursday began a final distribution of about $10 million of accrued interest on Class 14 claimants’ B notes, the financial recovery bonds given to unsecured creditors who were among the last to get repaid a small fraction of what they were owed.
The payments — which include more than half a million dollars to three state agencies — mark the last official court-supervised distributions in the bankruptcy case. At the time of its initial filing on July 18, 2013, Detroit’s insolvency was the largest Chapter 9 municipal bankruptcy in U.S. history. It resulted in Michigan’s largest city shedding $7 billion in debt.
“At this point, our attorneys are planning to submit a motion to close the bankruptcy case by April 15th,” Davis said.
After those payments head out the door, Davis said, the city’s remaining debt stemming from the bankruptcy includes its limited tax general obligation debt and legacy pension obligations, payments to which will stretch on for years.
Legacy pension contributions are expected to come to about $161 million next fiscal year, $77 million of which would come from the city’s general fund, according to Mayor Mary Sheffield’s budget.
Detroit’s bankruptcy reorganization plan gave former Mayor Mike Duggan and the City Council a 10-year break from contributing to city pensions — a break that ended in fiscal year 2024 — freed $150 million annually for spending on city services, restructured $3 billion in debt and wiped away $7 billion in various debts and liabilities, including reducing retiree health care benefits.
The significance of the pending closure of the case was not lost on individuals who lived through the furor of the bankruptcy proceedings more than a decade ago.
“What you’re seeing is a process and an experiment in municipal government that actually worked,” said Bill Nowling, who served as the spokesman for Emergency Manager Kevyn Orr during Detroit’s bankruptcy and now teaches at Michigan State University.
“The whole point of going into bankruptcy for the city was to give it a better footing and financial standing so it could move forward,” Nowling added.
Who’s last in line to get payments on debt Detroit owed when the city went bankrupt
In June, Detroit distributed roughly $20.5 million in B notes, a type of financial recovery bond, in connection with its final unsecured claims, at which point it began preparing for the final closure of the bankruptcy case. Starting Thursday, the city began to distribute a little more than $10 million in interest that accrued on those notes between December 2014 and March 26, 2026.
One of the largest recipients of the $10 million tranche is the American Federation of State, County and Municipal Employees (AFSCME) labor union, which will receive $4.46 million. The payment on AFSCME’s claims, which totaled more than $95 million, is intended to resolve long-running labor disputes that were settled prior to the bankruptcy but were never paid out, said Gino Carbenia, executive director of AFSCME Michigan 925.
The dollars will be distributed to union members who have been waiting for at least a partial payment for more than a decade, Carbenia said. The payments will, hopefully, close a chapter on a darker time for the city and the workers who weathered the storm alongside it, he said.
“Our members, our workers who work for the city of Detroit, have been through the trials and tribulations that the city of Detroit has,” Carbenia said. “This is long overdue.”
Wayne County, which is also set to receive a little more than $1 million in accrued interest, declined to comment.
Three state agencies considered unsecured creditors are set to receive roughly $583,931 in accrued interest, with the Michigan Economic Development Corporation receiving the majority of the money, court records show. They are tied to about $12.5 million total in claims the three agencies submitted as unsecured creditors during the bankruptcy that the state-appointed emergency manager in 2013 helped facilitate.
“To my knowledge, I believe these were the only payments to state entities from their pre-bankruptcy claims,” said Detroit Finance Director John Naglick Jr., who is also the city’s chief deputy chief financial officer.
A few other state agencies have received bankruptcy payments via checks and bonds — including the Michigan State Police, which recently received a check for $282.03, said Lauren Leeds, a spokeswoman for the State Budget Office.
“Other State of Michigan departments/agencies have not identified any receipts of Detroit bankruptcy settlement payments, nor are they aware that they will receive any of these funds,” Leeds said.
Of the state agencies due to receive interest payments starting Thursday, the MEDC will receive about $350,000 in relation to claims totaling nearly $7.5 million, according to the filing.
The Department of Environmental Quality, now known as the Department of Environment, Great Lakes and Energy, is due to receive $230,674 linked to claims totaling $4.9 million.
And the Michigan Department of Transportation will receive $2,908 tied to claims totaling $62,132.
Why it took so long for Detroit to pay off some of its debts
Though the city’s bankruptcy case is poised for official closure, it’s not unusual for there to be some administratively required post-confirmation distributions, said bankruptcy attorney Doug Bernstein, who represented charitable foundations in the Detroit bankruptcy case’s “Grand Bargain.”
Unsecured creditors typically get stretched out the longest in repayment, which is why those payments are among the last to be made.
But Bernstein noted that nearly everything with the Detroit bankruptcy has been unprecedented, making some timelines difficult to predict.
“When you’re putting together this plan, you don’t have a guidebook for municipal bankruptcies like this,” Bernstein said. “This was so unique. It’s like nothing else.”
eleblanc@detoitnews.com
Correction: This story has been updated to note the correct date when the city’s Class 14 B notes began accruing interest in the bankruptcy case.
This article originally appeared on The Detroit News: Detroit set to request official closure of historic bankruptcy case
Reporting by Beth LeBlanc, The Detroit News / The Detroit News
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