Detroit filed for bankruptcy on Thursday, the largest city in American history to do so, as officials cited population drain and bad management.
The state of Michigan had hired bankruptcy expert Kevyn Orr to lead the city out of a fiscal valley, but the factors against the city were too strong and on Thursday afternoon Orr filed for Chapter 9 protection for the city.
Detroit’s bankruptcy filing gives it a 30- to 90-day period to determine if it is eligible for Chapter 9 protection and determine how creditors will split up the city’s resources, which will likely be liquidated. That period could be extended however if creditors attempt to fight the city’s eligibility to file for bankruptcy. Two other recent municipalities to file for bankruptcy — Stockton, California, and Jefferson County, Alabama — saw protracted fights from creditors.
The city had been in dire straits in recent years, losing close to 1 million residents in the last decade and struggling with its employment base. Detroit peaked at 1.8 million residents in the 1950s, but today has just a little more than 700,000. As people fled the city, so too did businesses, with layoffs at automakers and an exodus of manufacturers.
“Only one feasible path offers a way out,” Gov. Rick Snyder said to Orr and state Treasurer Andy Dillon in a letter approving the Detroit bankruptcy filing.
Snyder had predicted the Detroit bankruptcy filing before hiring Orr, saying the city was in need of “radical” restructure in order to remain solvent.
“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” Snyder wrote. “The city’s creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.”
As Detroit files for bankruptcy, the city carries somewhere between $17 billion and $20 billion in debt.