Judge Approves Detroit Bankruptcy

On Tuesday Detroit became the largest American city ever to qualify for bankruptcy.

Joshua Lott / Reuters

On Tuesday, Detroit became the largest city in the nation to qualify for bankruptcy protection after Judge Steven W. Rhodes ruled that Detroit was insolvent, The New York Times reports.

The ruling will permit the city to find a way to pay off its debt and restore essential services, like police, the fire department, and animal control, but bankruptcy may also mean that retiree’s pensions and health benefits could be cut.

Lawyers for the state have said the city’s economic collapse has been years in the making.

“Ultimately the creditors have to come together with the debtor and realize that they need to work together to come up with a solution,” said James E. Spiotto, a Chicago lawyer and a municipal bankruptcy expert.

“No matter what, at some point, that reality needs to sink in.”

Rebecca Cook / Reuters / Reuters

Detroit, a city that was once the nation’s fourth largest, filed for municipal bankruptcy protection in July with Gov. Rick Snyder’s approval, but many public workers and retirees fought to keep the city from bankruptcy in fear the ruling would cut their benefits and pensions.

Judge Rhodes said that he would not approve of the pension cuts unless he finds that the entire plan is “fair and equitable,” CBS Detroit reports.

“This once proud and prosperous city cannot pay its debts. It is insolvent. It’s eligible for bankruptcy,” Judge Rhodes said. “But it also has an opportunity for a fresh start.”

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