The bankruptcies of Detroit, MI and San Bernardino, CA are progressing at such differing speeds that the San Bernardino firefighters’ union lawyer supposedly stated, “The difference is, one case is alive and one case is dead.” Detroit’s bankruptcy has the dubious honor of being the nation’s largest, fastest bankruptcy while San Bernardino has been accused by several creditors of dragging its feet and unduly delaying its bankruptcy’s resolution.
Whether the dissimilar speeds are legitimately based, the facts remain that: Detroit filed for bankruptcy protection under Chapter 9 on July 18, 2013 and hearings have already commenced on Detroit’s submitted plan for exiting bankruptcy; San Bernardino filed for bankruptcy protection under Chapter 9 on August 1, 2012 and hopes to submit its “plan of adjustment” for exiting bankruptcy sometime in 2015.
San Bernardino maintains that the delays are legitimate. Unlike Detroit, San Bernardino was forced to file for bankruptcy protection under an “emergency” section of California law that dispenses with the requirement of meeting with creditors and a mediator; consequently the City did not have the benefits of a necessary meeting prior to filing. In addition, San Bernardino’s bankruptcy filing was contested by the California Public Employees’ Retirement System (CalPERS) and the decision on its appeal has not been given due to a confidential agreement between San Bernardino and CalPERS. Furthermore, City officials maintain that a viable solvency plan for emerging from bankruptcy takes time and that viable solvency rather than speed is the City’s bankruptcy goal. Finally, City officials maintain that the high legal fees/costs of bankruptcy still cost less than the loss of bankruptcy protection.
Critics, including the policemen’s and firefighters unions, claim the City is deliberately languishing in bankruptcy court. They maintain that the City is fully using the protections afforded by a bankruptcy action, such as imposing employee benefit cuts and enjoying relief from creditor pursuit, while avoiding the tough decisions that must be made in forging a plan for adjustment. Meanwhile, the City is paying $3 – 4 million in litigation fees/costs for every 12 months it continues in bankruptcy limbo. The City’s critics are not content with San Bernardino’s anticipated 2015 submission of its plan of adjustment; therefore, they are seeking a court-imposed deadline for submission of the plan, so creditors and unions can at least see an end to this lengthy bankruptcy proceeding.
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