The city of Detroit officially became the largest municipality in U.S. history Tuesday to enter Chapter 9 bankruptcy after a judge declared it met the specific legal criteria required to receive protection from its creditors.
The landmark ruling ends more than four months of uncertainty over the fate of the case and sets the stage for a fierce clash over how to slash an estimated $18 billion in debt and long-term liabilities that have hampered Detroit from attacking pervasive blight and violent crime.
"It is indeed a momentous day," U.S. Bankruptcy Judge Steven Rhodes said at the end of a 90-minute summary of his ruling. "We have here a judicial finding that this once-proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity."
In a surprise decision Tuesday morning, Rhodes also said he will allow pension cuts in Detroit's bankruptcy. He emphasized that he won't necessarily agree to pension cuts in the city's final reorganization plan unless the entire plan is fair and equitable.
"Resolving this issue now will likely expedite the resolution of this bankruptcy case," he said.
Rhodes' verbal ruling, which precedes a 140-page written opinion to be issued Wednesday, gave Detroit the green light to enter Chapter 9 bankruptcy.
"The court finds that Detroit was and is insolvent," he said. "The court finds that the city was generally not paying its debts as they became due."
Rhodes said bankruptcy was a "foregone conclusion for a very long time. Cities often wait longer to file for bankruptcy than they should have, and the city of Detroit was no exception."