Detroit succumbs to bankruptcy, seeks court protection

Article by Anita Panait, on July 19, 2013

The city of Detroit has filed for bankruptcy, becoming the most populous city in the United States to do so. The city is now seeking court protection from creditors as it tries to get rid a budget deficit and reduce its long-term debt. Michigan Governor Rick Snyder has authorized the city's emergency manager, Kevyn Orr, to file the petition. He said in a letter that the bankruptcy petition is “a last resort to return” Detroit to “financial and civic health for its residents and taxpayers."

Census data show that the median household income in Detroit was less than $28,000, compared with $49,000 across Michigan, with over 36 percent of residents lived in poverty as of 2011. The median home value of $71,000 in the city was barely half the $137,000 value across Michigan.

The city listed assets and debt of over $1 billion in a Chapter 9 petition filed in court in Detroit. Chapter 9 of the U.S. Bankruptcy Code is reserved for municipalities, with rules distinct from that of Chapter 11.

Orr warned in May 2012 that Detroit might run out of cash. He proposed to restructure over $17 billion in debt and long-term obligations made by the city.

This restructuring plan entails reducing pension payments for public employees, terminating cost-of-living increases, removing some workers from the system and making the rest pay more. Orr said in a report that without a significant restructuring of its debt, Detroit would not be able to “break the cycle of damaging cutbacks in essential municipal services and investments."

Topics: bankruptcy

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