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After Filing for Historic Bankruptcy, the City of Detroit Will Also Face a $26 Million+ Legal Bill

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The city of Detroit’s municipal bankruptcy case — the largest of its kind — has taken yet another turn as the city has racked up a $26 million bill with its law firm, according to a recent report from a court-appointed fee examiner.In the month of March alone, the city was charged $3 million in fees and $83,000 in expenses by international law firm Jones Day. The amounts had not been included in the January-March quarterly report, which had been submitted to the U.S. Bankruptcy Court on Aug. 5 by fee examiner Robert Fishman.

These additional numbers now bring the total billing between July 2013 and March 2014 to $25.1 million in fees and $1 million in expenses.

When added to the total cost of the Michigan city’s professional services related to its historic Chapter 9 bankruptcy, the amount as reported by the fee examiner tops $55 million.

Kevyn Orr, Detroit’s state-appointed emergency manager and former attorney with Jones Day, said he hopes the final cost will stay below the $100 million mark.

The previous record for the largest municipal bankruptcy case was held by Jefferson County, Alabama, which spent only about $25 million during the two-year-long case. However, the amount of costs and debts for the county totaled over $4 billion.

“Most of Detroit’s revenue is generated by taxes; their budget is set up that they aren’t able to pay their bills because they don’t have enough income,” says Will Ridings, Principal of Ridings Law Firm. “For most people that are living day to day, 90% of bankruptcies occur because of divorce, loss of income, or a medical reason. If something happens to their income stream, then they aren’t going to be able to afford the monthly payments they need to make in order to run a household. This is what happened to Detroit on a much larger scale.”

The estimated debt for the city of Detroit is between $18 billion and $20 billion. Detroit is also the largest city to file for bankruptcy in the United States, with a population of over 700,000.

Future quarterly reports for April-June and July-September will likely show even higher costs during the city’s key confirmation hearing and beyond from Sept. 2 to Oct. 17.

Judge Steven Rhodes will preside over the hearing to determine whether the city can adjust its debt.

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