Detroit Files for Bankruptcy

The wheels have fallen off the automotive capital of the world.

Detroit Files for Bankruptcy Photo (cc) by Patricia Drury

Motown is officially Po’ Town.

The most populous city in Michigan has filed for Chapter 9 bankruptcy. It’s the largest American city ever to do so, Detroit Free Press says.

We wrote a few months ago about how the city was so broke it took a loan from automakers to keep ambulances and police cars on the streets. State governor Rick Snyder also appointed an emergency financial manager, a bankruptcy lawyer named Kevyn Orr, and gave him most of city officials’ authority to try saving it.

Orr has decided salvation will have to come through bankruptcy. The city has about $18.5 billion in debt and other liabilities, DFP says. Nearly half of that is attributed to two pension funds, which filed lawsuits seeking to prevent a bankruptcy filing. But Governor Snyder authorized the bankruptcy filing, NBC News says:

“The fiscal realities confronting Detroit have been ignored for too long. I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future,” the governor said in a statement. “This is a difficult step, but the only viable option to address a problem that has been six decades in the making.”

Orr had proposed a repayment plan to creditors that would’ve given many about 10 cents on the dollar, NBC News says. The pension funds would’ve gotten an even worse deal, and Orr said if negotiations failed bankruptcy was the next option.

So what happens when a city goes bankrupt? Bankrate and NPR tackled the question last year. There’s usually a substantial reduction in services, including firefighting, garbage collection and library branches. City maintenance stops. Taxes will probably go up at some point.

But in Detroit’s case, it’s hard to see the city go anywhere but up from here. Only a third of its ambulances were running in the first quarter of the year and there are nearly 78,000 abandoned buildings, Reuters says.

It takes time to recover from a bankruptcy, but when it’s a person vs. a city, there are steps to do it as quickly as possible. Below is the video from our recent story, How to Rebuild Credit After Bankruptcy.

Brandon Ballenger
Brandon Ballenger @btballenger
I'm a freelance journalist living in South Florida. If I'm not writing, I'm playing video games or at the beach. My favorite spice is oregano, and I thought you should know. I ... More

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