Detroit Ruled Eligible for Bankruptcy, Largest in U.S. History

It might be a dubious claim to fame, but also a necessary step, for one of the nation’s worst debt-beleaguered cities: Detroit officially became the largest city to enter Chapter 9 bankruptcy in U.S. history today after the filing was cleared by a judge.

As predicted by NACM, U.S. Bankruptcy Judge Steven Rhodes ruled the city was, in fact, insolvent and that it was legally eligible for a municipal bankruptcy filing. Detroit's Chapter 9 endured months of heated court and behind-the-scenes wrangling. Unions and other groups representing retirees and current city employees repeatedly argued, to no avail, that a Chapter 9 on the part of the city violated the Michigan Constitution. However, city and state officials as well as the U.S. Justice Department defended Detroit's right to file, saying the filing does not amount to any state or federal constitutional violation. Supporters also argued bankruptcy is the only way back for a city nearing $20 billion in unfunded debt, primarily caused by massive entitlements (pension, health care) for public workers and retirees as well as years of mismanagement.

Rhodes intimated throughout the process that it was unlikely that the constitutionality argument would derail the proceedings.

- Brian Shappell, CBA, CICP, NACM staff writer

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