By Diana Marcum

April 1, 2013, 1:53 p.m.

STOCKTON -- A federal judge ruled Monday that Stockton is eligible for bankruptcy protection, over the objection of creditors who argued the city could come up with more money.

U.S. Bankruptcy Judge Christopher Klein said Stockton can move forward with a plan to reorganize debt. He twice stated that the creditors had acted in bad faith and had refused to pay their share of the costs for negotiations.

"The creditors got a big black eye today," said Karol Denniston, an attorney who helped draft the legislation that guided Stockton's mandated mediation before filing for bankruptcy protection. "Now the stage is set for the real dogfight."
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This is the most interesting part.
At issue will be whether U.S. bankruptcy law trumps California law, which says the pension plan must be funded.

The $900 million Stockton owes to the California Public Employees Retirement System to cover pensions is its biggest debt -– as is the case with many cities in California.