Detroit, once America’s fourth biggest city and still the heart of the country’s auto industry, filed for Chapter 9 bankruptcy protection in a federal court late on Thursday. With a current population of approximately 700,000, it means Detroit is now the biggest municipal to ever file for bankruptcy protection in the U.S.   

The approval came from Michigan Governor Richard Snyder based on a recommendation from the city’s emergency manager Kevyn Orr. The city had failed to negotiate a reduction on debts totaling $18.5 billion, owed to creditors and unions, some of which are pension boards and insurers.

That equates to around $26k for each of Detroit’s residents.  

Decades of financial mismanagement plus the loss of jobs, not to mention the associated reduction in population and tax revenue, are the reasons put forward for Detroit’s demise. In a statement, Snyder makes mention that reality had been largely ignored for a period stretching almost six decades.

Over the next 30 to 90 days, courts will decide whether the city is eligible for Chapter 9 protection and which creditors will be able to make claim on whatever resources the city has left. The city will be able to maintain key services such as emergency and transport provisions thanks to certain protected tax revenues.

Fortunately Detroit’s bankruptcy is unlikely to have any major effect on the local auto industry, though today’s news is still somewhat poignant considering the relatively recent bankruptcies of two of the ‘Detroit 3’ automakers. Representatives for automakers including General Motors, Ford and Chrysler have said Detroit’s insolvency is not expected to impact their business outlook.

The Obama administration has also chimed in, stating that it is monitoring the situation and remains a strong partner but that leaders in Michigan and the city’s creditors must find a solution to the serious financial challenge.


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