Detroit filed for Chapter 9 bankruptcy protection approximately 30 minutes ago. The filing is here, courtesy of Business Insider.
“Right now, the City cannot meet its basic obligations to its citizens,” Gov. Rick Snyder, who signed off on the filing, said in the petition. “Right now, the City cannot meet its obligations to creditors.”
Much like GM did, when a government promises too much to it citizens in terms of benefits and entitlements, and cannot make the payments, this is the inevitable end result. A bailout is a temporary measure, but in the end, bankruptcy will happen.
It’s actually a good thing — assets won’t be encumbered by absurd amounts of debt which cannot be paid back. It’s estimated that Detroit owes somewhere around $20 billion in long-term liabilities. That’s serious money for a municipality.
The secured debtors (ones who lent with the ability to take collateral if the loan is not paid) will probably get some return on their loans. Unsecured debtors will get hosed.