Detroit’s bankruptcy saga comes to end

Author: | Published: 2 Dec 2014
The city relied on the rarely used Chapter 9 of the Bankruptcy Code
Detroit, the biggest US city to declare insolvency, will officially exit bankruptcy on December 8.

As a municipality with obligations to its residents, the situation has a striking resemblance to several not so distant sovereign debt crises. This, combined with the final agreements falling under traditional US bankruptcy laws, necessitated a very careful balance of stakeholder interests.

With over $18 billion in debt, the city officially began bankruptcy proceedings in July 2013. It cut $7 billion of that debt through a plan of adjustment that allowed the city to restructure not only its bonds, but also city pension obligations.

The massive and often contentious process raised several unprecedented issues, including the city’s obligation to pensioners under Michigan’s state constitution. In the end, the proceedings were aided by Chapter 9 of the US Bankruptcy Code, which is designed for...