By 

• MATTHEW DOLAN

The city of Detroit files for Chapter 9 federal bankruptcy protection, making the automobile capital and onetime music powerhouse the country's largest-ever municipal bankruptcy case. WSJ Global Autos Editor Joe White reports.

The city of Detroit filed for federal bankruptcy protection on Thursday afternoon, making the automobile capital and onetime music powerhouse the country's largest-ever municipal bankruptcy case.

The Chapter 9 case filed in U.S. District Court for the Eastern District of Michigan came after Kevyn Orr, the emergency manager, failed to reach agreements with enough of the bondholders, pension funds and other creditors to restructure Detroit's debt outside of court. The final decision rested with Republican Gov. Rick Snyder, who had appointed Mr. Orr as Detroit's overseer in March.

"This was a difficult and painful decision but I believe there are no other viable options," said Mr. Snyder in a video on Michigan's official website. "This is a situation that's been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt, Detroit is broke,"

He called bankruptcy "an opportunity for a fresh start."

It was expected that the city would report long-term liabilities close to $20 billion. The city's assets were less clear, but Mr. Orr had called the city functionally insolvent and recently missed a payment to the city's pension system of nearly $40 million.

The financial outlook has never been bleaker for the Motor City, which has shrunk from its peak of nearly two million people in 1950 to 700,000 today.

Hurt by a flight of residents and businesses to the suburbs, cuts in state aid and a crash in real-estate values, Detroit borrowed to meet operating costs as well as long-term liabilities such as pensions and health care for retired city workers.

An American City

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<cite>Associated Press</cite>

Henry Ford and Edsel Ford celebrated with photos on the production line as their 20,000,000th automobile rolled out of the factory on April 15, 1931.

 

As a result, Detroit has spent on average $100 million more than it took in every year since 2008.

Most at risk under the bankruptcy case is the city's $11 billion in unsecured debt. That includes almost $6 billion in health and other benefits for retirees; more than $3 billion for retiree pensions; and about $530 million in general-obligation bonds.

A plan Mr. Orr disclosed last month calls for paying off the majority of what secured creditors such as certain bondholders are owed while offering pennies on the dollar to unsecured bondholders, unions and pension funds.

The strategy is likely to prompt heated debates before a bankruptcy judge as each group argues its case for why it deserves a bigger payout.

Municipal-worker retirees are set to get less than 10% of what they are owed under the plan.

Write to Matthew Dolan at matthew.dolan@wsj.com

A Long, Sad Decline

Detroit's population fell more than 26% from 2000 to 2012 and totals about 700,000—down from almost two million in 1950, according to the census.

An estimated 40,000 structures or land parcels sit vacant or empty.

The city spent $100 million more than it took in every year since 2008, on average—borrowing the rest.

Some 36% of Detroiters lived below the poverty level between 2007 and 2011, the census found.

In 2012, Detroit had the highest violent crime rate for a city with more than 200,000 residents, the FBI says.

A bankruptcy filing by the long-struggling city, which may come in a matter of days, would be the largest ever by a U.S. municipality.