 | |
| Photo: Detroit Skyline and city images. |
The city of Detroit filed a Chapter 9 bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of Michigan July 18, 2013, the largest municipal bankruptcy filing in U.S. history. A city known for its global automobile industry and music industry of Motown fame, Detroit now struggles with about 18.5 billion dollars in debt, placing a noticeable strain on key city services to its citizens.
There are about 89,500 municipalities in the United States and, between 1980 and 2010, there were 239 municipal bankruptcy filings. The Chapter 9 bankruptcy is a federal municipal bankruptcy proceeding designed to provide financially distressed municipalities protection from creditors as it establishes a restructuring plan. A bankruptcy judge will be appointed to oversee the administration of the city's financial affairs.
In a Chapter 9, assets held by the municipal can be sold and executory contract terms adjusted under a Chapter 9 restructuring plan. Investors in Detroit municipal bonds may have to fight it out with city pensioners, as public workers and retirees face benefit cuts. Moody's Investors Service advised bondholders that the filing has placed Detroit into a credit negative rating and that bond payments may be interrupted.
In 2009, General Motors Co. and Chrysler Group LLC entered and exited a Chapter 11 bankruptcy after receiving $80 billion in federal bailout assistance. It is too early to speculate whether the U.S. federal government or the Michigan state government is in a position to assist the ailing economy. As the bankruptcy proceeding unfolds, the impact of the filing on the outlook for the U.S. economy will be the subject of great discussion among investors and economists. Detroit's population was nearly 2 million in 1950. According to a WSJ report, the city's population is about 700,000 in 2013.
