Detroit goes bust: judge gives go-ahead for city's bankruptcy

Decline of 'Motor City' enters new chapter as judge clears largest municipal bankruptcy in US history

LAST UPDATED AT 12:29 ON Wed 4 Dec 2013

DETROIT, the city that once symbolised America's industrial muscle, is officially going bust after a judge cleared the way for the largest municipal bankruptcy in US history, the BBC reports.

The sad decline of 'Motor City' is hardly news; neither is its decision to file for bankruptcy, which happened four months ago. The move was bitterly opposed by a coalition including retired city employees, police and fire-fighter unions, who took legal action to block the filing.

But a ruling handed down by bankruptcy judge Steven Rhodes overnight says Detroit can proceed with a plan to "rid its balance sheet of $18bn of liabilities" by filing for Chapter 9 bankruptcy. And in a 140-page statement detailing his verdict, Rhodes made it clear that pensions would not be protected as the city tries to claw its way out of debt.

"Since pension benefits are essentially contracts, that means they are not entitled to any special protection [under bankruptcy provisions]," the BBC says. "This sets up a contentious clash that could see severe cuts to the once-sacred pension benefits to Detroit's retired fire-fighters and police officers."

But in a city that can no longer afford to keep street lights illuminated or provide its citizens with basic services, bankruptcy is seen by some as a way forward.

Rhodes described bankruptcy as overdue and a "foregone conclusion". He added that the Chapter 9 provisions were the only way to reverse Detroit's decline and "attract new residents and revitalise and reinvigorate".

Writing in the Detroit News, Laura Berman says: "The city has been officially declared broken."

The big question now is whether Kevyn Orr – the lawyer appointed as Detroit's Emergency Manager in March - "can devise a plan to put it back together again".

Orr says the judge's decision means the "heavy lifting" can begin. "Now it's for real," he said. "Now is the time to sit at the table and negotiate some kind of consensual deal."

Detroit's paper concedes that the move to bankruptcy "imperils everything from pensions to the city's art collection". The future of that collection – "one of the finest in the country", according to the New York Times – is hanging in the balance.

While the sale of paintings and sculpture from the Detroit Institute of Arts, could generate "hundreds of millions of dollars or more", many passionately oppose a fire sale.

Rhodes offered a sliver of hope to Detroit's embattled citizens last night. "This once proud and prosperous city can't pay its debts. It's insolvent. It's eligible for bankruptcy," he said. "At the same time, it also has an opportunity for a fresh start." · 

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