Detroit is Officially Bankrupt

In the early half of the twentieth century, Detroit was an all-American dream city: prosperous, futuristic, and full of promise. But on the dirty coattails of racism, rioting, market saturation, and economic decay, the once-glistening city has fallen on hard times. And fallen. And fallen. In a city far better known for financial sickness than financial success, a controversial and unprecedented bankruptcy may finally offer Detroit an escape from total ruin. Some are hopeful that the Motor City will be empowered to start spinning again at last — but others say the bankruptcy violates Michigan’s Constitution and hurts pensioners.

Hope for a Struggling City?

Most large cities in the nation serve as microcosms (on a decidedly macro scale) of the American dream: big buildings, crowded streets, bright lights, surging industry. But where cities like New York, L.A., Philadelphia, and Boston have all flourished with the passage of time, Detroit has endured a slow-motion, decades-long sink into decrepitude. Skyscrapers stand empty. Police take nearly an hour to respond to calls. Firefighters are stretched thin by rampant arson. Most infamously, nearly half of the city’s streetlights don’t work, and at night, streetwise residents seek safety in their homes — homes which are frequently sandwiched not by neighbors, but by burnt-out fields of garbage and grass.

After enduring years of crippled infrastructure, raging poverty, and ever-increasing debt, Detroit’s financial managers finally hit an impassable wall. On July 18th, the city broke new ground by filing for a Chapter 9 bankruptcy. While no one was surprised that the Motor City was in trouble, the prospect of a major American city succumbing to financial death stunned the country. As the initial shock subsided, opinions began to form. Many pointed to Detroit’s evidently insurmountable problems as an urgent cry for assistance. Others, however, argued that granting a bankruptcy would slash pensions and retirement benefits in violation of Michigan State Constitution.

Judge Rhodes Grants Detroit Chapter 9

U.S. Judge Steven Rhodes presided over the mammoth case. As city residents, members of the press, and the legal community watched on the edges of their seats, Rhodes announced that he would make the unprecedented decision to grant Detroit the Chapter 9 bankruptcy it had been seeking since the summer.

“Without the protection of Chapter 9 the city will be forced to continue on the path it was on before this case,” Judge Rhodes said of his decision. Defending his verdict, he explained, “We have here a judicial finding that this once-proud and prosperous city cannot pay its debts. It’s insolvent. It’s eligible for bankruptcy. At the same time it has an opportunity for a fresh start.” He added, “The city no longer has the resources to provide its residents with basic police, fire and EMS services.”

Rhodes’ logic is solid enough. Indeed, Detroit — $18.5 billion in debt to thousands of creditors, unable to ensure its own residents’ basic rights to safety — is desperately insolvent. But while Rhodes is not incorrect in his assessment, many have nonetheless found flaws in his ruling.

The American Federation of State, County and Municipal Employees (AFSCME), Council 25, intends to appeal Rhodes’ decision in the interest of preserving the pension plans that thousands of Detroiters rely on to make ends meet. Lynn Brimer, who is an attorney for the Retired Detroit Police Members Association, is dismissive of Rhodes’ prioritization of bankruptcy over pensioners. Brimer says Rhodes “made it clear that they should not be treated as a general unsecured creditor.”

For now, many Detroiters can breathe a long-contained sigh of relief: the return of services and the regrowth of crucial industry may finally be in sight. But for concerned pensioners, Rhodes’ decision comes as a devastating blow.

Only one thing is certain: Detroit is officially bankrupt.

If you are considering filing for bankruptcy, contact an experienced bankruptcy attorney the law offices of Young, Marr & Associates online, or call us at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania to schedule your free consultation.

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