- Category: Bankruptcy
- Published: Thursday, 10 December 2015 20:09
- Written by CBC
- Hits: 688
For years now it is no secret that Detroit has been in financial turmoil. The once booming city of Detroit was diminished by a debt so great that the city had to file for bankruptcy. When Detroit filed in 2013 it was the largest municipal to file for Chapter 9 bankruptcy in United States history. The amount the city was in debt is well into the billions.
What attributed to Detroit's debt?
Over the years, the neglect by Detroit’s leaders pretty much paved the way for the downfall of this once plentiful city over a span of more than 20 years. The city's population dropped, crimes increased, and taxes started to rise. The increased taxes pushed families to move out of the city and into the suburbs. Higher crime rates also drove people to leave. Records also show the State of Michigan withheld and estimated amount of 172 million from the city of Detroit when that money could have been used to help the city. The leaders kept borrowing and borrowing billions of dollars without limiting any of the spending. The drop in population led to the decline of property and businesses. Keeping businesses afloat became a huge issue. There were around forty thousand homes lying empty in Detroit. The amount of revenue coming in was surpassed by the amount owed by the city’s obligations of health care, pensions, operation expenses, and not mention bills.
Getting out of debt
The court ruling allowed for the implementation of the city's long term plans to regain financial standing. Detroit’s Mayor Mike Duggan feels confident in their ability to stay on track stating, “As long as we balance our budgets and pay our bills, we’re going to get along with Financial Review Commision just fine.” The city is currently being watched carefully by the Financial Review Commision to prevent anymore increased debt and ensure plans and contracts are being followed correctly. The current issues regarding pension plans are still an issue. Pensions will not currently increase due to the financial toll it can take on the city. Recently a suit has been filed against vendors who three months prior to Detroit’s legendary bankruptcy were paid forty million dollars. These vendors received what is called “preferential payments”. Preferential payments are payment made by creditors within ninety days prior to filing for bankruptcy. This can be illegal and currently a total of one hundred eightyfive actions have been filed.These actions are still under the jurisdiction of the federal bankruptcy judge even though the city is out of bankruptcy. If these actions hold true in court it could mean the return of some of the money. Detroit’s deficit may start turning around even more. Though these actions have just taken place and will take some time to prove. Since this information is so new, it is unclear how the money will be distributed back to the city once a decision has been made. Detroit is slowly but surely making a comeback. The city itself has been officially out of bankruptcy for one year and are continually making strong efforts to keep it that way. It will be interesting to see in another year where the Detroit financial situation will be.