Teaming Up With Your Creditors in Bankruptcy

Generally speaking, in most Chapter 7 and Chapter 13 bankruptcy cases, individuals filing such actions view their creditors – at least for the pendency of the case -as legal adversaries whose interests diverge and whose goals clash. By contrast, in some Chapter 11 corporate reorganizations, the corporation seeking bankruptcy protection will negotiate deals whereby current creditors – particularly secured creditors – will finance ongoing operations of the company and/or enter in to a future joint venture with that debtor.

Ironically, in the municipal bankruptcy of the City of Detroit, it appears that the city wants to join with at least two of its secured creditors so that it can afford to obtain effective discharge of its $18 billion debt. Some of Detroit’s secured creditors issued a special type of bonds to the city several years ago under the belief that, should the city subsequently seek bankruptcy protection, their claims would be exempt from any reductions by the bankruptcy court. Earlier this year, the bankruptcy judge, Steven Rhodes made clear that he expected that the claims of all companies that had provided previous financing to the city would be cut and the companies issuing those bonds appear not ready to test the judge’s resolve on that point.

The plans under current discussion include the redevelopment of the site now occupied by the Joe Louis Arena built in the late 1970’s. In its place the city and its future partners, which may include Financial Guaranty Insurance Co, Aurelius Capital Management LP and BlueMountain Capital Management LLC. Intend to construct hotel and retail space in the downtown area that civic leaders view as a linchpin of economic recovery.   

The creditors in this instance have believed that they are facing such significant losses on their past investments that are willing to put up new funding for Detroit in exchange for sizable interests in future real estate developments. The City of Detroit is negotiating this deal because it needs additional funds to make its way out of this municipal bankruptcy and  is concerned about the prospects for future economic growth after the City sheds its debts.

At this juncture, the negotiators on both sides have yet to reach agreement on final details. Even when the parties do reach a meeting of minds on the various terms and conditions of the deal, Judge Rhodes will have to approve such agreement.  Until the ongoing trial reaches its conclusion probably next month, it remains unclear whether the discussed plans will actually proceed to fruition.

In Albuquerque, Giddens & Gatton Law, PC has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases and can provide advice over which type of bankruptcy action fits one’s particular needs. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.