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Failed State: Detroit Bankruptcy

By now you’ve probably heard that Detroit has filed the largest municipal bankruptcy in U.S. history. What does all that mean, and how will it play out? The video above gives a synopsis of the situation and where it may go from here. The drama continues today for the former capital of the auto industry, as it plans to cut pensions for government workers as part of the filing. According to nytimes.com:

“Detroit’s pension shortfall accounts for about $3.5 billion of the $18 billion in debts that led the city to file for bankruptcy last week. How it handles this problem — of not enough money set aside to pay the pensions it has promised its workers — is being closely watched by other cities with fiscal troubles.”

Those are big numbers on a piece of paper, but they really become concrete when considered on an individual basis as the article continues:

“Gloria Killebrew, 73, worked for the City of Detroit for 22 years and now spends her days caring for her husband, J. D., who has had three heart attacks and multiple kidney operations, the last of which left him needing dialysis three times a week at the Henry Ford Medical Center in Dearborn, Mich.

“Now there is a new worry: Detroit wants to cut the pensions it pays retirees like Ms. Killebrew, who now receives about $1,900 a month.”

“It’s been life on a roller coaster,” Ms. Killebrew said, explaining that even if she could find a new job at her age, there would be no one to take care of her husband. “You don’t sleep well. You think about whether you’re going to be able to make it. Right now, you don’t really know.”

Making matters even more complicated, Michigan has never filed bankruptcy, so there’s no legal precedent for the matter and how it will play out for the individual citizen. As reported by forbes.com:

“There has never been a municipal bankruptcy in the State of Michigan, therefore, there is no legal precedent to how this will play out or the timing involved. John and his team do believe that the state will have a lot at stake in the handling of Detroit’s debt obligations as it will have implications to other borrowers across the state.”

Regardless of the details of Detroit’s bankruptcy filing, we can only hope that the individual citizens will not get lost in the numbers, and that somehow Detroit can emerge an even stronger city.

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