Hearing on Detroit's bankruptcy begins in court

The key hearing on the biggest municipal bankruptcy in U.S. history started on Tuesday in a federal courtroom, where teams of attorneys began laying out arguments over Detroit's plan to adjust $18 billion of its debt.

Detroit made history nearly 14 months ago when it filed for bankruptcy. The confirmation hearing on the city's plan to exit bankruptcy is now scheduled to stretch through Oct. 17.

Protesters demonstrate outside the Detroit federal courthouse, Sept. 2, 2014.
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Protesters demonstrate outside the Detroit federal courthouse, Sept. 2, 2014.

In a pretrial conference earlier on Tuesday, Gregory M. Shumaker, a Jones Day attorney representing Detroit, told Judge Steven Rhodes the city may not finish laying out its case until the last week of September or the first week in October.

Detroit has settled with most of its major creditors, including the city's two pension funds, but two insurance companies—Syncora Guarantee and Financial Guaranty Insurance—have emerged as major objectors to the plan. Both guaranteed payments on $1.4 billion of pension debt the city is seeking to void and both are facing recoveries of just pennies on the dollar.

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Earlier on Tuesday, Rhodes said the impact of the plan on any individual creditor is not relevant to the plan's confirmation. If he determines the 1,034-page plan for fixing the city's finances is fair and feasible, Rhodes can impose its terms on hold-out creditors in a practice known as a "cram-down."

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But questions have bubbled up in recent weeks about the city's ability to recover from years of fiscal stress, and there remains the possibility that Rhodes could not confirm the plan.

—By Reuters