Detroit Files For Chapter 9 Bankruptcy—The Largest Municipal Bankruptcy Filing In U.S. History
By Chuck Sudo in News on Jul 18, 2013 9:20PM
The city of Detroit became the largest city in U.S. history to file for Chapter 9 bankruptcy protection Thursday after the city's emergency manager failed to convince it creditors to accept debt settlements for pennies on the dollar.
Bankruptcy expert Kevyn Orr was hired by the state of Michigan in March to help Detroit restructure $18 billion in long-term debt; $11 billion of that is unsecured, including pension and retiree health care plans for over 30,000 city employees.
Orr met with creditors last month in a last-ditch attempt to convince them to accept the settlement offers, warning of a 50-50 chance a bankruptcy filing would happen. Some creditors were asked to accept settlements of 10 cents on the dollar of what the city owed them. Michigan Gov. Rick Snyder, who approved of the filing, said it was a tough decision he didn't want to make.
“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,” Gov. Rick Snyder 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.”
Once home to a population of nearly 2 million people, Detroit now has a population of around 770,000 people and lost 250,000 residents between the 2000 and 2010 Censuses. The population loss resulted in a commensurate loss of tax dollars.
The bankruptcy filing begins a 30- to 90-day process to determine whether Detroit is eligible for Chapter 9 protection and which creditors can seek settlements. Snyder said in his statement said that 38 cents of every city dollar goes toward debt repayment, legacy costs and other obligations. That was expected to reach 65 cents per dollar by 2017. If the filing is approved, city assets could be liquidated to help satisfy payment demands.