Detroit Files Largest Municipal Bankruptcy in History

We all saw this one coming. Detroit has been on the road to bankruptcy for many years now. With the ever tumbling U.S. automotive manufacturing market, the bursting of the housing bubble and subsequent recession, and finally losing a huge portion of their tax base as family after family left Detroit, it finally became inevitable and city officials were unable to stave off Detroit’s bankruptcy filing. While it is certainly not the first, Detroit is the largest municipal bankruptcy ever filed in the history of our country. Many reported Detroit’s bankruptcy filing will near $20 billion with over 100,000 potential creditors knocking on the door. It remains to bee seen what will happen with the numerous unfunded pensions and other benefits the teachers, police officers, firefighters, and other city employees were relying on.

Detroit’s Decline

In 1950, Detroit was the 5th largest city in the U.S. with over 1.8 million people living in the city limits alone. Today, only about 700,000 people remain.  With the vast reduction in population, the tax base and revenues for the city declined dramatically. As a result, the city was forced to go deeper and deeper in debt to manage the city and its numerous financial obligations. Termed the “motor city,” Detroit long lost its lure as the leading area for automotive manufacturing and the glory days are long gone.

What Happens Now

The law suits over the Detroit Bankruptcy Filing are already piling up. Within about 3 months, the bankruptcy court will determine whether or not Detroit may proceed with the Chapter 9 filing. Many have argued against the city’s legal standing to seek such protections, however, most agree Detroit will be allowed to proceed through the process which may take 1-3 years to finalize. Like other cities who recently filed for bankruptcy, Detroit will likely need to start selling off some of its assets. For instance, the city owns a large number of works of arts reported to be worth an outstanding sum of money. Additionally, the city owns toll roads and other “cash cows” that should easily be sold off. At the end of the day, this may be exactly what Detroit needed to clear its book and start fresh. Hopefully the local politicians tasked with rebuilding will have learned from their obvious mistakes.

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