A federal Bankruptcy judge ruled on Monday that the city of Stockton, Calif., was eligible for court protection from its creditors, clearing the way for a battle over whether public workers’ pensions can be cut when the city they work for goes bankrupt. Enlarge This Image Kevin Bartram/Reuters Stockton, Calif., has cut tens of millions of dollars in city services. After declaring Chapter 9 bankruptcy last year, Stockton eliminated tens of millions of dollars in city services and said it would cut some bond payments in a way unseen before in municipal bankruptcy. But bondholders objected to Stockton’s effort to protect pensions while forcing losses on investors. Many states have statutes and constitutional provisions making it illegal to cut public workers’ pensions. Until now, there has not been a prominent test of those laws in bankruptcy — particularly not in California, where the big state Pension system, known as Calpers, has been girding for battle on the issue, trying to avoid the precedent of a cutoff or shortfall in a city’s pension contributions. Federal bankruptcy law often trumps state laws, but municipal bankruptcies are so rare that there is almost no precedent on how to apply the law to state pension provisions. In the ruling, issued on Monday in Sacramento, which affirmed the legal status of Stockton’s bankruptcy, Judge Christopher M. Klein said he could see battle lines being drawn between Calpers — formally the California Public Employees’ Retirement System — and the city’s other major creditors, including several Wall Street companies that either bought Stockton’s bonds or insured them. But he ruled that it was still too early in the case for that battle to be joined. read more at: http://www.nytimes.com/2013/04/02/business/ruling-sets-stage-for-pension-battle-in-bankrupt-city.html?ref=bankruptcies