Why Did Detroit Declare Bankruptcy?


Quick Answer

The city of Detroit, Mich., filed for bankruptcy after years of city mismanagement, population reduction, increasing unemployment and decreasing tax revenue left the city without funds to pay its creditors. Detroit is the largest city in the United States to file for bankruptcy as of 2014.

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Full Answer

Detroit ran for years under a government crippled by outdated practices and corrupt politicians with wasteful spending strategies, according to Kevyn Orr, the city's emergency manager. This, coupled with decreasing tax revenue, left the city without the funds to pay its creditors in 2013. As of July 2013, the city of Detroit owed around $18.5 billion in pensions, health care costs and life insurance obligations.

Detroit's decreasing tax revenue is the result of decreasing population, declining property values and rising unemployment. Detroit has experienced a 26 percent decline in population since 2000 as a consequence of joblessness and a high crime rate. The crime rate also drives away businesses, which affects the number of job opportunities available in the city. With less than one-half of citizens over the age of 16 working in 2013, the city received very little tax revenue. Without tax revenue, city services decline, including police, fire and municipal lighting, increasing the opportunity for crime.

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