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Detroit: Largest City Bankruptcy Filing In U.S. History

Probably the biggest story right now in bankruptcy is Detroit. The city appears to be the largest U.S. city ever to go into bankruptcy. It filed for Chapter 9 on July 18, 2013.

Under the bankruptcy code, municipalities like Detroit can restructure otherwise unmanageable debt (similar, generally speaking, to business reorganization under Chapter 11).

Monica Davey and Mary Williams Walsh with the New York Times quote Michigan Gov. Rick Snyder: "This is a difficult step, but the only viable option to address a problem that has been six decades in the making."

Some estimates put Detroit's debt at $18 to $20 billion.

Chapter 9 municipal bankruptcy filings are obviously rare, given the situation. There are far more individuals, families, and businesses both large and small that routinely need fresh starts when facing overwhelming debt. Individuals and families routinely file under Chapter 7 and Chapter 13 of the code; small businesses routinely file under Chapter 11 reorganization.

So when it comes to Chapter 9, few know exactly how this is going to play out.

Many area workers are worried about how Detroit's bankruptcy will affect their pensions and retirement benefits. (By way of comparison, Chapter 7 personal bankruptcy allows you to hold on to retirement accounts, like 401(k) plans, free and clear.)

Davey and Walsh quote one Detroit office worker: "For a struggling family I can see bankruptcy, but for a big city like this, can it really work? What will happen to city retirees on fixed incomes?"

Source: Detroit Goes Bankrupt, the Largest City to Do So in U.S.

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