Detroit is eligible to file for Chapter 9 bankruptcy, a judge ruled Tuesday. The decision makes Detroit the largest U.S. city allowed to file for bankruptcy. The city can also cut municipal employee pensions, ruled Judge Steven Rhodes of the U.S. Bankruptcy Court.
The ruling comes four months after Detroit first filed for bankruptcy. Judge Rhoades found the city to be insolvent, a result of facing $18 million in debt, a failing police department and a declining population.
"We have here a judicial finding that this once-proud city cannot pay its debts," Rhodes said after his ruling.
Rhodes reprimanded Detroit, however, said the city did not do everything possible to avoid bankruptcy. The city hurried through negotiations and only allowed 30 days for creditors to respond to its offer, the Detroit Free Press said.
The next step is for Detroit to submit a proposal with plans to realign its debt and revamp the government. Jones Day, Detroit's representation during the bankruptcy proceedings, has until the end of this year to file the proposal. Rhodes emphasized he would not automatically support the pension cuts unless the proposal is impartial.
Critics of Rhodes' ruling were most surprised over the decision to allow pension cuts. Unions said the ruling goes against Michigan's constitution, which has a section that protects pensions. But those pensions can be impeded in a municipal bankruptcy, reports say. Unions also argue the city could have been spared if Detroit emergency manager Kevyn Orr conducted negotiations with creditors in good faith.
One Detroit resident, William Curtis Walton said the bankruptcy was a "coldly calculated, unethical and immoral breach of public trust," the Detroit Free Press reported.
The city of Detroit has faced hardships for several decades. Almost 40 percent of the streetlights don't work, and its population has decreased dramatically, from 1.8 million in 1950, to 700,000 this year.
