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December 03, 2013

Judge declares Detroit eligible for Chapter 9 bankruptcy

Detroit will become the largest city in U.S. history to declare bankruptcy after a federal judge ruled Tuesday the city had met the legal criteria to win protection from its creditors.

U.S. Bankruptcy Judge Steven Rhodes delivered the 140-page ruling after four months of legal wrangling between a state-appointed emergency manager and unions worried about the bankruptcy’s impact on pensions. Rhodes presided over a nine-day trial to determine whether the city met the requirements for bankruptcy protection.

“This once proud and prosperous city can’t pay its debts. It’s insolvent. It’s eligible for bankruptcy,” Rhodes said from the bench. “At the same time, it also has an opportunity for a fresh start.”

Detroit, once a city of 1.8 million and the home of the American auto industry, has suffered a long descent into financial crisis. The city was home to just 713,000 people, according to the 2010 Census, a mere shadow of its post-war apex. Huge pension costs and a recession that sent American automakers into their own financial tailspins exacerbated Detroit’s budget gaps.

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