As predicted in my April 2, 2013 article, the city of Detroit has filed for Chapter 9 Bankruptcy – the largest city ever to file, surpassing Stockton, California’s bankruptcy. Detroit is the 8th U.S. city to file for bankruptcy. There are at least a dozen other cities lined up and expected to file bankruptcy within a year. All are citing a sluggish, weak economy and shrinking tax base. The dozen cities are waiting in the wings for the outcome of the first 8 to have filed. Bankrupt cities are setting precedent with no previous case law.
Detroit is nearly $20 billion in debt. The “Motor City of Detroit” once the fifth largest city in the U.S., had a population around 2 million. Today, the population is around 600,000. They lost more than half their tax revenues with the shrinking population. Detroit became a ‘blighted ghost town’.
Almost 300-years old, Detroit had the highest violent crime and homicide rate last year adding to the long list of reasons why residents are leaving the area. Car manufacturers left their old, multi-story buildings years ago moving to the ‘burbs’ and building newer, one-story plants. Workers followed, and in 2009 the economy collapsed.
Today, there are more than 78,000 homes and buildings marked for demolition in Detroit. The city has 341,554 housing units with an estimated 246,477 that are occupied. Over 95,000 housing units are empty. It’s just a matter of time those abandoned units will be added to the demolition list.
Detroit is one of the highest foreclosure-rated cities in the nation. Two years ago, they set records having nearly 50,000 foreclosures in a 6-month period.
One of Detroit’s suburbs was named the worst “city” in the nation to find a job. The real unemployment rate in the city of Detroit, the poorest big city in the United States, is close to 50%.
A foreclosure hotline set up last week by the State of Michigan quickly crashed due to an overload of calls. Michigan, along with California and Nevada had recently started their own foreclosure prevention programs, targeted to help people who had become unemployed or had reduced incomes. Michigan offered these homeowners up to $750 a month in cash assistance and a principal reduction of $15,000. However, the major mortgage lenders in Michigan are refusing to participate making it highly unlikely these unemployed homeowners will receive any of the promised assistance.
Detroit creditors will likely be asked to accept 10% of what they are owed.
Retirees are in real jeopardy of losing their pensions. Michigan had told the city’s union attorneys they would negotiate, but Detroit filed bankruptcy at 4:06 pm Thursday, July 18th. Attorneys for the pension funds were seeking a temporary restraining order to block the historic bankruptcy filing. Their emergency hearing before a judge, to issue the restraining order, began at 4:11 pm. It was a race to the courthouse – Detroit won by five minutes.
There will be many upcoming battles, and precedents set over who gets repaid. One battle will be over these pensions. State law protects public pensions – outside of bankruptcy, but the federal bankruptcy code pre-empts the state constitution.
Other cities in trouble:
– Oakland, California, (plagued by high crime and low revenue),
– San Jose, California (retirement costs rose from $73 million in 2001 to $245 million last year)
– Wenatchee, Washington (defaulted on $42 million debt, faces litigation for default)
– Pontiac, Michigan (unemployment was 22.2% June 2012, high retiree obligations)
– Indianapolis, Indiana (high crime and unemployment)
– Le Center, Minnesota (weak management practices, overestimated tax revenues)
– Menasha, Wisconsin (defaulted on bonds issued to fund a steam plant)
– Salem, New Jersey (over-financed projects)
– Riverdale, Illinois (population decline, high unemployment)
– Woonsocket, Rhode Island (poor management/accounting,
The shrinking populations of New Orleans, Cleveland, Cincinnati, Pittsburg, Toledo and St. Louis put them on the ‘at risk’ list to file bankruptcy somewhere down the road. Will bankruptcy allow the United States to recover with a new beginning, or will they bring the struggling economy down even further?
Keith A. Gantenbein, Jr. is a Colorado consumer advocate attorney, foreclosure defense and real estate attorney located in Denver and servicing all of Colorado. His foreclosure defense practice includes: foreclosure prevention, foreclosure assistance, loan modifications, short sales, and all other foreclosure defense legal assistance. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, debt defense, debt harassment, contracts and landlord/tenant. If you think you will be facing debt collection, foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.