Wednesday, July 24, 2013

The Race for NY Over - Detroit Declares Bankruptcy

With scores of city blocks empty that gives farmers envy (empty land fully serviced by utilities like water), Detroit is bleeding people and therefore vastly important tax dollars. Pegged at the turn of the century as a possible NY, both cities were racing to attract the best and brightest. The beauty of Detroit infrastructure was on par with the grandeur of NY. That was a 100 years ago. Nowadays what old monuments remain stand in eerie and sometimes imposing silence. If you want in on some cheap real estate, Detroit is the place. Unfortunately, the once mighty city, that was at least given legitimacy from all the auto work, has hit a disappointing low. With China stealing all the manufacturing jobs, now under 700000 people live in the city. Declaring bankruptcy means they don't have to worry about paying creditors nor face the possibility of lawsuit. Although, right now there are challenges against the filing with some judges calling it a contravening of the State's constitution. Chapter 9 bankruptcy allows the city to restructure its debts in order to pay them off. However, it does require 'permission' of the state to proceed. Chapter 9 is different than CHapter 11 for businesses or Chapter 7 for personal fillings. It will also mean lay offs for municipal employees, selling off assets, raising fees and scaling back basic services such as trash collection and roads. Detroit is the largest city thus far to declare bankruptcy in the US. The journey now, after hitting rock bottom (can it go any lower) will be the road to recovery. That will start with jobs, and that's impossible to do with businesses on the way out. Detroit has a unique opportunity to try something new to save the city. That's balanced with the catch-22 of the need for tax dollars yet lower taxes might encourage businesses to relocate to the city. Not only are creditors affected, but pensioners as well. There could be a massive loss to the savings of many city workers. Once the CHapter 9 mess is underway the recovery will follow, but the dust won't settle from this vastly expected outcome for years to come. With notes from San Diego corporate lawyer CC Legal.