United States: The Detroit Bankruptcy: Two Years Later

Last Updated: July 28 2015
Article by Stephen J Brogan

 July 18, 2015 was the second anniversary of the City of Detroit's filing for bankruptcy. This action was taken by the City's Emergency Manager Kevyn Orr, with the support of Michigan's Governor Rick Snyder. But, with the exception of Detroit's corporate leadership, it was fiercely resisted by virtually all other interested parties, including political leaders, public employees, holders of the City's debt obligations as well as virtually all commentators in the media. Two years later, it is clear that the steps taken during the bankruptcy proceeding have provided a promising new beginning for this once-great City and its people.

This bankruptcy culminated a long course of dramatic urban decline. In the 1950s, Detroit was the fifth-largest city in the United States, with a population of 1.85 million. It was America's busiest port and the center of its most important manufacturing industry. By 2000, however, Detroit's population had been cut almost in half to 945,000. The de-industrialization of the Midwest, driven by a struggling automotive industry, had pushed Detroit into a spiral of decline, made worse by its often dysfunctional political leadership.

By the early years of the 21st century, Detroit's condition had become critical. The City was chronically short of cash, its tax base had eroded, crime remained at high levels, fundamental public services were failing, and infrastructure was crumbling from want of maintenance. From 2000 to 2010, Detroit's reduced population fell an additional 25 percent, from 945,000 to 711,000. With its tax base departing and unemployment reaching record levels, tax receipts plummeted.

Total City revenue declined by approximately 20 percent between 2008 and 2013. Raising taxes was not an option; the City was already levying property taxes at or near all the statutory ceilings imposed by Michigan law and had among the highest personal income tax rates of any city in Michigan. Nearly one-third of property owners stopped paying their taxes on real estate, which had collapsed in value. And the City continued to lose those taxpayers who could afford to leave.

Between 2008 and 2012, Detroit's spending exceeded its revenues by an average of $100 million annually. By the time of the bankruptcy, the City's deficit skyrocketed to $700 million. Legacy costs—such as the City's commitments to provide health care benefits to retirees and its obligation to fund its pension obligations and to service its bond debt—absorbed 55 percent of Detroit's annual general fund budget in FY2014 and were projected to balloon to 70 percent by FY2020. The continued deterioration of increasingly underfunded city services and infrastructure appeared unavoidable.

In the fall of 2012, the Governor impaneled a financial review team to evaluate the City's financial situation. In February 2013, after several dire interim reports, the review team reported that Detroit was in imminent danger of financial collapse, recommended that the Governor declare a "financial emergency," and advised him to appoint an emergency manager for the City. On March 14, 2013, the Governor appointed Kevyn Orr as the City's Emergency Manager.

The reaction to Mr. Orr's appointment was oftentimes mean-spirited and personal. Some local and national civil rights and political leaders—in addition to the predictable pundits and talking heads—attacked his appointment as a racially inspired effort to disenfranchise Detroit's voters and elected officials. A characteristic trope was to liken Mr. Orr to a plantation "overseer" with Governor Snyder as the "master." The threats and invective targeted at Mr. Orr personally required the State of Michigan to assign Mr. Orr two security details, one to publicly escort him around the City and a second plainclothes detail, unknown even to Mr. Orr himself, to follow as a backup.

On the day of his appointment, Mr. Orr called his task the "Olympics of Restructuring." This understated the challenge. Mr. Orr's job was to restore financial health to a hopelessly bankrupted city in the face of strident opposition from an array of politically powerful creditors, including public employee unions, retiree representatives, and large institutional owners of the City's debt instruments. Precedent for challenging the well-protected interests of such employees, retirees, and debt holders was limited. Throughout the litigation, Mr. Orr and his team of legal advisers, financial experts, and restructuring consultants were routinely outnumbered in court and opposed by sophisticated adversaries.

On top of this overwhelming legal challenge, Mr. Orr was required to oversee the operations of the City in his role as Emergency Manager. Remarkably, Mr. Orr was able to put in place several important operational reforms that quickly improved basic services for the City's residents. By privatizing trash collection, Mr. Orr greatly improved the reliability of this fundamental service. Over the objection of creditors, Mr. Orr found ways to provide funds to Detroit's unfunded Public Lighting Authority, which led to the installation of 30,000 new streetlights by the end of 2014. Through a combination of public and private funding, Mr. Orr was able to reopen 160 city-owned parks that had been closed for want of maintenance.

Perhaps most important, Mr. Orr was able to take steps that dramatically improved the performance of Detroit's emergency services, particularly its police force. Police response times for high-priority calls improved from almost one hour to 16 minutes, homicide closures improved from 11 percent to over 65 percent, while reported burglaries and thefts declined 20 percent from 2013 to 2014.

The bankruptcy proceedings prosecuted by Mr. Orr have provided the City with the means to build on these and other operational reforms initiated during his tenure. Proceedings that could have taken years were, remarkably, resolved in 16 months, largely because of a dedicated and hardworking bankruptcy judge and the creative use of mediations, in which a number of district court judges in the Eastern District of Michigan sat as mediators. Through the litigation and more than 150 mediations, Detroit's $18 billion debt burden was reduced by approximately $7 billion, restoring the City to financial solvency.

In remarks delivered from the bench at the conclusion of the bankruptcy proceedings on November 7, 2014, Judge Rhodes recognized Mr. Orr's singular contribution to the city:

Here I want to single out Kevyn Orr for special recognition and appreciation. His task was perhaps the most challenging of all of us. Yet he met that challenge with skill, determination and commitment, and at great personal sacrifice. I hope that someday soon, this City will recognize the singular contribution that he made to its fresh start and give him the credit that he truly deserves.

At a time of widespread pessimism about the state of civic affairs in the United States, the example of Detroit is a reminder that committed, competent individuals can make an enormous difference, even in circumstances that are hostile and seemingly hopeless. Detroit's bankruptcy is simply one step in its long-term revitalization, but without the successful readjustment of the City's debts, reorganization of its operations, restructuring of its many financial obligations, preservation of its cultural assets, and the patience and cooperation of its elected leaders and citizenry, Detroit's future would have been bleak. Sadly, because Mr. Orr's work as Emergency Manager turned out to be such a success, it now receives little attention from the news media, which can no longer find fault with his remarkable achievement.

An edited version of this Commentary, titled "2 years after filing, bankruptcy put Detroit on track," was published in the Detroit Free Press.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.