UPDATE 1-October trial proposed for Detroit bankruptcy eligibility

Tue Jul 30, 2013 1:37pm EDT

July 30 (Reuters) - U.S. Bankruptcy Judge Steven Rhodes on Tuesday proposed speedy deadlines for Detroit's municipal bankruptcy filing, including an October trial to determine if the city can pursue bankruptcy and a March 1, 2014 date for it to file a reorganization plan.

The judge proposed Oct. 23 for the start of a trial on potential objections to Detroit's eligibility to file what would be the biggest Chapter 9 municipal bankruptcy in U.S. history.

The proposed dates and deadlines will be the subject of a hearing in federal bankruptcy court in Detroit on Friday.

Rhodes' schedule is more ambitious in some areas than the one proposed by Kevyn Orr, Detroit's state-appointed emergency manager, after he filed the city's bankruptcy petition on July 18. In the filing, Orr set a goal of concluding the city's bankruptcy case no later than September 2014.

Doug Bernstein, a Detroit-based bankruptcy lawyer at Plunkett Cooney, said the schedule indicates the judge wants to move the case along quickly. But doing so in a politically sensitive case like Detroit's may prove challenging.

"He's got to do a balancing act," Bernstein said. "The longer a case languishes, the more it costs everybody, so he's very aware of that. But he's got to balance that with affording all the parties due process."

The schedules put forward by Orr and Rhodes would have Detroit moving through bankruptcy court more quickly than Stockton, California, which took nearly a year to pass through the eligibility phase alone. With more than $18 billion in liabilities at the time it filed for bankruptcy, Detroit's debt load dwarfs that of Stockton, which listed liabilities of around $1 billion when it filed in June 2012.

Judge Rhodes proposed an Aug. 19 deadline for creditors to file objections to Detroit's case to proceed through bankruptcy court. Orr, a former corporate bankruptcy attorney, had proposed the same deadline, while requesting a hearing on eligibility objections "as soon as the court's schedule will permit."

Rhodes last week suspended lawsuits pending in Michigan courts by city workers, retirees and pension funds seeking to derail Detroit's bankruptcy petition, putting his court in full control of the case.

The next step will determine if the city is eligible for bankruptcy. Detroit must prove that it is insolvent and that it made a good-faith effort to negotiate with creditors owed more than $18 billion or that there are too many creditors to make negotiating feasible.

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