Judge grants Detroit permission to declare bankruptcy

December 11th, 2013

Detroit broke a record this past Tuesday by becoming the largest U.S. city ever to declare bankruptcy. After a nine-day trial, Judge Steven Rhodes ruled that the city had the legal standings to receive protection from its creditors.

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

This decision clears up the ambiguity of the past four months in regards to how to handle the debt crisis that has been surrounding Detroit. According to Fox News, the city argued that bankruptcy is necessary so that its residents can have access to higher quality services, such as faster police response time (compared to the current slow, nearly nonexistent response) and fixing inconsistent garbage pickup. When the city first filed for bankruptcy in July, 40 cents of every dollar collected by Detroit was used to pay debt. If the city didn’t have access to relief through bankruptcy, it could rise to 65 cents per dollar.

Highly valuable art at the Detroit Institute of Art could potentially be sold in efforts to alleviate the debt crisis, and a water department that reaches to large parts of southeastern Michigan could be sold as well, according to NBC News.

Pensions prove to be a distressing issue in the bankruptcy debate as well. Pension funds are short by $3.5 billion, according to the city. Judge Rhodes stated that cutting pension funds is a possibility, and while there is a provision in the Michigan Constitution that protects public pensions, they are not untouchable in bankruptcy.

A 140-page written opinion by Rhodes was released Wednesday, which officially releases Detroit to enter Chapter 9 bankruptcy, according to The Wall Street Journal.

While many object to the ruling, Rhodes stands by his decision and said that further negotiations would be impractical as the city’s financial crisis continues to grow worse.

Detroit Emergency Manager Kevyn Orr said in a statement: “Time is of the essence, and we will continue to move forward as quickly and efficiently as possible. We hope all parties will work together to help us develop a realistic restructuring plan that improves the financial condition of Detroit and the lives of its 700,000 citizens.”

Information from Fox News, The Wall Street Journal and NBC News were used for this report.