Is bankruptcy next for Detroit Public Schools?

Bankruptcy expert worries if school district has a choice

By Rod Meloni - Reporter, CFP ®

DETROIT - The Detroit Public Schools (DPS) district's money situation is on the edge of disaster. 

The emergency manager is out the district is looking for new leadership while there is a half-baked plan to fix the problem. 

Local 4 bankruptcy expert Doug Bernstein, who is Plunkett Cooney law firm's lead bankruptcy attorney, said bankruptcy for DPS is a complete unknown, and it's not something that always works anyway. 

"If you're out of cash, you know, it looks like bankruptcy could be the route the district may end up in," he said. 

Bernstein has a special place in his heart for DPS. His father was a principal in the district years ago. Bernstein now watches the governor's attempt to fix DPS with an old company/new company bankruptcy-style model and worries. 

Video: Michigan governor's plan would create two DPS districts

"Yes, it's good that you get rid of the debt. Show me what you're doing with the money you now have available, what you are going to buy, how you are going to get class sizes down, how you're going to fix the buildings," he said. 

The biggest problem he sees is the fact the governor assumes that when and if the legislature passes his DPS plan, everyone -- including creditors and teachers -- will rejoice. 

Read: Following the money in the DPS mess

"The school district isn't in the position where creditors or even the teachers can upset the plan ... you've got the chaos," he said. 

Bankruptcy has never been used in the United States for a school district. However, Bernstein worries bankruptcy will find DPS instead of the other way around. 

"Every day that you don't have a deal done makes it more likely that you won't have a choice," he said. 

Governor Rick Snyder's office released this statement: 

"Bankruptcy for the Detroit Public Schools should only be considered a last resort because it would be bad for everyone involved. We're working with our partners in the legislature to rectify the situation that will improve finances and academics for public school students in Detroit, getting them the best education possible."

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