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Detroit hurtles toward first bankruptcy hearing Wednesday

 / Updated 
Downtown Detroit is seen from a vacant lot, looking south along Woodward Avenue, Michigan July 21, 2013.
Downtown Detroit is seen from a vacant lot, looking south along Woodward Avenue, Michigan July 21, 2013.REBECCA COOK / Reuters

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The largest municipal bankruptcy in U.S. history will have its first day in court two days from now, even as other lawsuits seek to block a plan to restructure its more than $18 billion in debt.

On Monday, U.S. Bankruptcy Court Judge Steven Rhodes agreed to the expedited hearing to put state lawsuits challenging the bankruptcy filing on hold. It was requested by Detroit's emergency manager Kevyn Orr on Friday after a Michigan court judge ordered Orr to withdraw the Chapter 9 filing, arguing it violates the state's constitution.

If granted, top Michigan state officials, Orr and others would be protected from litigation regarding the bankruptcy petition.

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have been running to state court in Michigan's capital of Lansing in an effort to derail the Chapter 9 municipal bankruptcy.

Ingham County Circuit Court Judge Rosemarie Aquilina on Friday said the state law that allowed Michigan Governor Rick Snyder to approve the bankruptcy filing violated the Michigan Constitution. The governor cannot take actions that would violate constitutional protections for retirement benefits for public workers, she said.

Michigan Attorney General Bill Schuette, acting on behalf of Snyder, filed an appeal with the state appeals court asking for immediate consideration. But the appeals court has not yet taken any action on the matter.

Aquilina on Monday morning adjourned a hearing in another case brought by city pension plans with no action taken. The pension plans asked for the proceedings to be postponed one week to July 29. The pension funds had filed an objection to an expedited hearing in federal bankruptcy court, according to a court document.

Legal experts have said they expect the federal judge to put state litigation on hold, allowing those plaintiffs to use the federal court to argue why Detroit should not be allowed to file for bankruptcy.

Orr on Friday said he suspected the city will face an eligibility fight, which would also include whether or not the city made a good faith effort to negotiate with creditors over its debt.

Judge Rhodes also set an August 2 hearing in federal court on Orr's motion on procedural matters, including deadlines, schedules, the assumption of leases and contracts, and the appointment of a retired employees' committee.

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime became rampant and its population shriveled by about 25 percent in the past decade to 700,000. The city's revenue failed to keep pace with spending, leading to years of budget deficits and a dependence on borrowing to stay afloat.

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