Detroit Files for Bankruptcy

Posted on Jul 29, 2013 By Amy K. Tanner

Amy TannerRecent news reported that the city of Detroit, Michigan has filed for bankruptcy following the approval of the filing by Michigan Governor Richard Snyder. The city has filed a case under Chapter 9 of the United States Bankruptcy Code seeking protection from creditors. In a letter filed with the Bankruptcy court, the Governor cited some of the reasons for the filing, to include an inability to meet obligations to citizens and to creditors and he indicated that a declining population in the city has attributed to this inability to meet these obligations.  You can find information of the filing here.

Chapter 9 is found in Title 11 of the United States Code and is an adjustment of debts for a municipality.  Chapter 9 filings are not common and, until the filing by Detroit, Jefferson County, Alabama held the record for the largest Chapter 9 filing.

The general purpose of a Chapter 9 is virtually the same as a consumer chapter of bankruptcy and that is to put a stay on the creditors of the municipality as the municipality is the Debtor under this Chapter.  While under the protection of  the Chapter 9, the municipal debtor has time to devise a plan for adjusting its debts commonly by refinancing debt, negotiating a reduction in the principal and interest of current debt, or by negotiating an extension of time in which to repay the debt. The main difference is that there is no provision under Chapter 9 for liquidation of assets of the municipality to create proceeds to distribute to creditors.

The filing by the city of Detroit just shows us how debt can affect not only individuals and business, but large municipalities as well. Bankruptcy can offer a safe haven from creditors and give just about anyone, consumer or business entity, public or private – an opportunity to rebuild or restart.

If you currently find yourself facing an inability to meet your financial obligations, please call our office nearest to you and schedule a confidential and free initial consultation with one of our licensed attorneys to discuss if a bankruptcy option can help you.