Detroit Becomes Largest U.S. City to File for Bankruptcy

July 18, 2013 — -- Detroit became the biggest American city to file for bankruptcy after its emergency manager filed for Chapter 9 protection on Thursday, with more than $18 billion in accrued obligations, according to Michigan's governor.

In the filing with the U.S. Bankruptcy Court in the Eastern District of Michigan, obtained by ABC News, state-appointed emergency manager Kevyn Orr indicates that the city's liabilities are "more than $1 billion" and its estimated number of creditors are "over 100,000."

In meetings with debt holders last month, Orr had indicated there was a 50-50 chance the city would need to file for Chapter 9 protection as it tried to convince creditors to accept pennies on the dollar to deal with its financial problems.

If the bankruptcy filing is approved, Detroit's assets could be liquidated to meet creditor payments.

Included in the bankruptcy filing is a four-page letter signed by Michigan Gov. Richard Snyder and dated July 18 in which he writes, "The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services."

Snyder wrote, "The City has more than $18 billion in accrued obligations."

He writes that a "vital point" made by Orr is that "Detroit tax rates are at their current legal limits, and that even if the city was legally able to raise taxes, its residents cannot afford to pay additional taxes."

"The City's creditors, as well as its many dedicated public servants, deserve to know what promises the City can and will keep," Snyder wrote. "The only way to do those things is to radically restructure the City and allow it to reinvent itself without the burden of impossible obligations. Despite Mr. Orr's best efforts, he has been unable to reach a restructuring plan with the City's creditors. I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection."

Jefferson County, Ala., previously held the title of largest municipal bankruptcy. Attorneys for Jefferson County have submitted plans to exit its historic $4.23 billion bankruptcy.

Orr, who was hired in March to assist with the city's budget, had tried to appeal to creditors by warning of the effect on the people of Detroit.

"If they can see what it's like for Detroiters, what they endure every day in this city, I think they'll begin to understand what's at stake," Orr said earlier this month to reporters.

To help save money, the city had closed certain public offices on occasional budget-required furlough days, including its City Council and Mayor's Office.

In a statement, Detroit Mayor Dave Bing said, ""Today's bankruptcy filing is an unfortunate event in our City's history. While it has never been my desire that the City file for bankruptcy, I understand why Kevyn found it necessary to do so. I said when I entered office four years ago that our City was in a financial crisis. I also said we cannot simply cut our way out of this situation."

The city of Harrisburg, Pa., is still trying to fill its coffers after filing for bankruptcy in 2011. The city is hosting an auction of Old West items this week from an American West museum that never opened.

In Photos: Harrisburg, Pa. Raises Funds With Old West Auction

Michigan's emergency managers were created by the Local Government and School District Fiscal Accountability Act, introduced by Republican Gov. Rick Snyder and signed into law March 16, 2011.

Emergency managers have grabbed the reins in other fiscally troubled cities in Michigan, like Ecorse (population 11,230).

Bankrupt Cities Using Emergency Financial Managers to Recover

Detroit's population has fallen as much as 25 percent in the last decade as it lost a quarter-million residents between 2000 and 2010. In 2011, the city had the fastest population decline in the city's history -- reaching the level of the 1910 census.