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Detroit Becomes Largest US City to File Bankruptcy

  • VOA News

Detroit, once the symbol of American industrial power, has become the largest city in U.S. history to file for bankruptcy, a victim of its declining population and faltering auto industry.

A half-century ago, Detroit stood at the center of the country's booming auto industry and boasted a population of 1.8 million people, many of them assembly line factory workers drawn to the city by wages that led to a middle-class life. But when a state-appointed fiscal manager filed the city's bankruptcy papers Thursday, Detroit's population had dwindled to 700,000. Many of its neighborhoods are deserted and houses boarded up.

The bankruptcy filing gives the city protection from its creditors. Detroit Mayor Dave Bing said he hopes the move will mark a new beginning for the city, which has been struggling with a budget deficit of more than $300 million and long-term debt that may total $18 billion or more.

​"This is a very, very difficult day for me as I am sure it is for a lot of our citizens here in the city of Detroit," he said. "When I took office over four years ago, I said Detroit was in a financial crisis and we tried to work our way through this situation over the last four years. But it has been very, very difficult."

In March, Michigan Governor Rick Snyder hired fiscal manager and bankruptcy expert Kevyn Orr to oversee Detroit's troubled finances, making it the largest U.S. city under state supervision. Orr said it soon became obvious that Detroit was on an unsustainable financial path.

Other Municipal bankruptcies in the US

  • City of San Bernardino, California filed 8/01/2012. Debt = $46 Million
  • City of Stockton, California filed 6/28/2012. Debt = $26 Million
  • Jefferson County, Alabama filed 1/9/2011. Debt = $4 Billion
  • Central Falls, Rhode Island filed 8/1/2011. Debt = $21 Million
"The reality is, that even a casual observer — a casual observer — has had to understand for some period of time now that Detroit simply was not on a sustainable footing, continuing to borrow, continuing to defer pension payments, continuing not to pay its bills on time, continuing a deepening insolvency."

Governor Snyder said the bankruptcy filing will give Detroit a chance to recover.

"Now is our opportunity to stop 60 years of decline," he said.

It is not entirely clear what happens next for the city. Orr said the city will maintain basic services, such as police and fire protection. But many of the city's street lights have already been cut off. The bankruptcy declaration also casts doubt about the future of public employee pensions and health care plans in Detroit, which has about 10,000 city employees.

A bankruptcy judge will be appointed to oversee the city's finances. Eventually, many of the city's creditors might only receive pennies on the dollar of the money they are owed.

Settlement of the case is expected to take a lengthy period of time, likely more than a year.

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