Federal judge blocks challenges to Detroit bankruptcy

July 24, 2013: 6:52 PM ET
federal block lawsuit detroit
NEW YORK (CNNMoney)

A federal judge blocked legal challenges to Detroit's bankruptcy filing on Wednesday pending a later ruling in the case.

Detroit became the largest municipal bankruptcy filing in the nation's history last week after a filing by state-appointed emergency manager Kevyn Orr. Orr and Michigan Gov. Rick Snyder said the city cannot afford its $11.5 billion in liabilities associated with pension benefits, retiree health care and unsecured debt held by investors.

Retirees and their pension funds quickly sued to block the bankruptcy filing, claiming it violated Michigan's state constitution. A county judge ruled in favor of the retirees last week, though the Michigan Court of Appeals reversed that ruling.

Related: After Detroit bankruptcy, then what?

On Wednesday, Federal Bankruptcy Judge Steven Rhodes ruled that jurisdiction over the case rests in federal and not state court, court spokesman Rod Hansen said.

Rhodes has yet to rule on the merits of the case and whether Detroit is eligible for bankruptcy, a decision he will make following arguments in the weeks to come. For the time being, however, all challenges to the filing have been put on hold.

Why Detroit filed for bankruptcy

The American Federation of State, County and Municipal Employees, a union representing public-sector workers, said in response that the court "missed an important opportunity to stop Governor Snyder and Kevyn Orr's constitutional breach now by deferring the argument to a future date."

"The fight is not over and we will continue to stand up for Detroit's workers every step of the way," AFSCME president Lee Saunders said in a statement.

The next hearing in the case will be a scheduling conference on August 2.

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