Vox has a good article regarding Detroit’s finances leading to the city’s bankruptcy.
The story shows how common rhetoric and supposition gets it wrong. Detroit, and most of its workers, much like most consumer debtors that file bankruptcy, were not living in luxury.
Many times there is a stigma attached to consumer debtors who file bankruptcy, that they spent their money on items they should never be able to afford. A great deal of our clients fall into bankruptcy due to job loss, marital divisions, and health problems.
We do handle cases where clients spent more than they could afford, but these are typically on small credit cards purchasing clothing or other household goods and over multiple years the debts just grew to an unaffordable amount.
As bankruptcy lawyers, we understand that filing bankruptcy is not an easy decision, or one to take lightly, but is a necessary legal process for many of our clients in order to gain a fresh start and rebuild their finances for the sake of their own well being and that of their family.
If you feel that your finances are in distress due to creditor actions, you should contact a bankruptcy lawyer to help plan bankruptcy-related or non-bankruptcy-related solutions.
Even if you know nothing about Detroit’s bankruptcy, you have likely heard some of its litany of bankruptcy-related problems. The fire department has been using makeshift alarm systems constructed from pop cans and doorbells to alert them to emergencies, the Detroit Free Press found. A recent report recommended the city tear down 40,000 buildings. The city reported that Detroit’s police had an average response time of 58 minutes to top-priority calls (though that may not be the best measure of effectiveness, as the Wall Street Journal argued). At one point around 40 percent of the city’s streetlights were out. And the city (in)famously shut off water for thousands of residents earlier this year.
Behind the collapse of basic services in Detroit is simple reality: the city is out of money. It’s so far in the red, in fact, that it’s doing something cities almost never do: declaring bankruptcy.
The bankruptcy process began a year and a half ago, but the trial itself is just finishing up its second week. Here’s how Detroit got to this point — and what comes next.
1) How bad are Detroit’s fiscal problems?
Very bad — Detroit will be the biggest municipal bankruptcy in US history. Its $18-billion bankruptcy is more than four times the next-biggest municipal bankruptcy, which was Jefferson County, Alabama’s $4.2-billion bankruptcy case in 2011. Detroit’s bankruptcy is also agonizingly complex; the city has around 100,000 creditors — including retirees, banks, and bond insurers — to appease.
Creditors like that will often try to prove that the city isn’t really insolvent — that it just needs to reach deeper to pay them back. So it’s a testament to Detroit’s fiscal woes that many of its creditors have put up little fight as to whether the city was insolvent; they simply conceded that it was.
“It’s notable that while in a lot of cases financial creditors fight very hard on the insolvency question, they did not in Detroit,” says Melissa Jacoby, professor of law at the University of North Carolina. “They all sat that out. It was unions and retiree associations that fought it.”
2) Where did all that money go?
This chart from the Huffington Post tracks where Detroit’s debts came from. It shows that around half of the city’s obligations are worker-related, counting up pension-related obligations and retiree health benefits.
Bankruptcy doesn’t save a city from basic fiscal problems, of course; it’s primarily an issue of debt. Many of the holders of that debt will end up receiving much smaller payouts than they were anticipating. And the city is hoping it can stave off those huge future bills on the retiree side by taking big steps like stopping providing health benefits to retirees.
3) So were Detroit’s retirees living large?
On average, no. CNN’s Melanie Hicken reported in 2013 that Detroit’s average annual pension for retired police officers was $30,000, which is lower than Kansas City, Dallas, and Chicago, and just over half of the $58,000 received by LA cops. In addition, general city workers received just over $18,000 per year on average. Moreover, some public-sector retirees may not receive Social Security benefits or may see those benefits reduced.
Vox: http://www.vox.com/2014/9/19/6117633/detroit-bankruptcy-explained-questions
