They’re in a Bit of a Pickle, Part Two: What if the City of Chicago Files Bankruptcy?

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Chicago — Photo by Grant Swanson

By: Donald L. Swanson

If the City of Chicago were to file bankruptcy, the Bankruptcy Court in Chicago would find itself in a bit of a pickle.

It’s not a between-a-rock-and-a-hard-place type of pickle. It’s more of a between-a-rock-and-an-I-don’t-want-to-go-there pickle.

First of all, let’s note that prospects for a City of Chicago bankruptcy filing are now dramatically increased. Here’s why:

–Chicago’s attempt to solve, by negotiated settlements, potential shortfalls in public employee pension funding have failed because the Illinois Supreme Court recently ruled that such settlements are prohibited by the pension clause in the State of Illinois Constitution.

–Detroit successfully resolved this issue in bankruptcy, when the Bankruptcy Judge ruled that provisions of the Bankruptcy Code override a similar pension clause in the Michigan State Constitution.

Second, let’s note that Detroit’s successful bankruptcy reorganization is attributed in large part to a proactive mediation process created by the Bankruptcy Judge in that case.

Third, let’s note that the Bankruptcy Court in Chicago recently took anti-mediation steps by, (1) deleting its local mediation rules, and (2) then ruling that it lacks authority to create a proactive mediation process.

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Pickle Jar

So the pickle, if Chicago were to file bankruptcy, is this: the Bankruptcy Court in Chicago will need to either,

–reject the proactive mediation model that enabled Detroit’s reorganization success, or
–reverse its prior anti-mediation decisions.

That’s not exactly an end-of-the-world pickle.

But it’s undoubtedly an issue of professional pride for the Court: will it follow a proactive mediation process that succeeded elsewhere, or will it remain stubbornly affixed to its prior rejection of any such mediation process.

Imagine the fallout if the Chicago Bankruptcy Court were to pursue the stubbornness-route, with reorganization efforts then languishing in unresolved disputes!

It’s a pickle.

Follow Don on Twitter here.

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