Detroit Ends Rampant Speculation by Finally Filing for Bankruptcy
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Detroit Ends Rampant Speculation by Finally Filing for Bankruptcy

July 22, 2013


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After months of speculation, Detroit finally decided to file for bankruptcy Thursday, the largest municipal bankruptcy in U.S. history

Detroit's filing tops a recent filing by Jefferson County, Alabama, by a significant margin, according to a report from Reuters.

Going bankrupt is a humbling moment for the Motor City, the birthplace of the American automotive industry, but it could represent the city’s last chance to regain some semblance of financial health.

And many observers believe bankruptcy was a necessary step for Detroit, which faces a long-term debt load of more than $18 billion, according to reports.

"Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing," said Rick Snyder, the governor of Michigan, in a letter attached to the filing.

Sources say Snyder had to approve a request to file bankruptcy written by Kevyn Orr, who has served as Detroit's emergency manager for several months.

According to reports, the bankruptcy could involve a contentious battle between the city and its creditors, especially the two city pension funds that are owed billions of dollars.

These pension funds recently filed a lawsuit in a Michigan court claiming that Snyder had no authority to allow Detroit to file bankruptcy.

This lawsuit remains pending, but sources expect the bankruptcy filing to receive court approval.

One bankruptcy attorney interviewed by Reuters estimated that the bankruptcy would last up to three years, and could potentially cost millions of dollars.

But the filing could be just what Detroit needs. The city’s population has fallen to 700,000 from a reported peak of 1.8 million in 1950, and its rapid decline has become synonymous with the death of American manufacturing.

The city has also been crippled by a wave of corruption in recent years, and a failure to invest in infrastructure has left a notable dearth in police officers and other emergency services.

The elimination of scores of police has helped result in a murder rate that’s the city’s highest in nearly 40 years, according to sources.

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