Last week, Judge Rhodes called Syncora's accusations ''manifestly improper and false'' and ordered them stricken from the court record.
Beyond those problems, Judge Rhodes must grapple with larger, essential questions about Detroit's fate: Even if the city's debt-cutting answers Detroit's immediate financial crisis, will it go far enough to prevent the city from sliding back into the same miserable circumstances of overwhelming debt, annual operating deficits and the threat of default and another bankruptcy in the years ahead? And will new spending to improve firefighting, police protection and archaic computer technology, and to remove tens of thousands of dilapidated buildings, be enough to restore city services and stop decades of departure and decline?
''This is a unique situation when you think about it,'' said Craig A. Barbarosh, a bankruptcy lawyer with the firm Katten Muchin Rosenman who is based in Costa Mesa, Calif., and represents some creditors. ''It's not like a company, where the judge can say, 'O.K., I'm going to liquidate the city.' ''
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Under the plan the city hopes Judge Rhodes will confirm, Detroit's more than 100,000 creditors would get a wide range of returns on their claims. Investors who bought $1.4 billion of certificates the city issued in 2005, to raise money for its pension system, could come away nearly empty-handed, since Detroit now calls the borrowing a sham transaction that should be voided entirely. By contrast, investors who bought a type of general obligation bond that was backed by a special, dedicated tax are slated to recover 74 cents on the dollar.
Thousands of retirees from the city's fire and police departments would expect no cuts to monthly pension checks, but smaller than expected cost-of-living increases in future years. General municipal retirees could see 4.5 percent cuts to their monthly pension checks, an end to cost-of-living increases and a clawback of previous payments from the pension system that are now deemed to have been improper. The more desirable outcomes for workers and retirees are possible with a separate, newly pledged pot of money: hundreds of millions of dollars from foundations, the state and other donors in an unusual, mediated deal called the grand bargain, to raise fresh money for the pension system and protect from sale the works of the Detroit Institute of Arts.
Creditors slated to get little or no money from the grand bargain hope to persuade Judge Rhodes that it cannot be approved, arguing that it discriminates unfairly and is not in the best interests of creditors.
During the trial, city lawyers will attempt to present evidence and witnesses, including Mayor Mike Duggan and Kevyn D. Orr, the emergency manager who has overseen this city for more than a year, to back up the need for their plan. A consultant hired by Judge Rhodes, Martha E. M. Kopacz, is to be questioned on her finding that Detroit's plan of debt adjustment is feasible.
An outright rejection of the city's blueprint would leave Detroit with no clear alternative. In municipal bankruptcy, unlike the corporate version, only the bankrupt government can propose an exit strategy. The judge can signal his preferences but cannot order amendments, and creditors cannot submit rival plans.
In the end, the up-or-down decision will belong to Judge Rhodes, a hard-to-read, sometimes intimidating force in the courtroom. Judge Rhodes, who got his law degree from the University of Michigan, was appointed as a bankruptcy judge in the Eastern District of Michigan in 1985. He is seen by those involved in the case as an expert on the bankruptcy code and a tough overseer of the proceedings, whose courtroom demeanor gives little hint at other aspects of his life, like his playing rhythm guitar in a classic rock band, the Indubitable Equivalents.
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For all sorts of political and legal reasons, leaders here are hoping for quick approval and a finish to the city's bankruptcy by the end of September. As of Sept. 27—18 months after Mr. Orr was assigned to take control of this city—he may be removed by a vote of elected officials in Detroit. Many residents have seen the state's appointment of an emergency manager as an undemocratic takeover of a mostly black city by the white Republicans who currently control the state government. Gov. Rick Snyder, the Republican who authorized a bankruptcy filing for the state's biggest city, is seeking re-election in November and if the city were to become bogged down in bankruptcy, it could become a campaign issue.
But even after Detroit leaves bankruptcy court, its issues will by no means be over. Legal appeals of the city's blueprint are likely. The city can expect years of financial oversight from a commission that includes representatives of the state as part of the deal struck to send state money to help spare pension cuts. And the city's larger questions will still loom: Can it actually begin rebuilding its tax base, financial stability and population, which has fallen below 700,000 and some demographers predict will drop still more?
—By The New York Times' Monica Davey and Mary Williams Walsh