Bankruptcy in the City of Detroit

Case Solution

Stuart C. Gilson, Kristin Mugford, Annelena Lobb
Harvard Business School ()

The bankruptcy of the city of Detroit in June 2013 was the largest municipal bankruptcy in US history at that time. For years, Detroit has struggled with a weakening tax base, high unemployment, a high debt burden, and rising costs for retirees. These financial burdens have led to cuts in basic public services, population declines, and significant urban destruction. The state of Michigan appointed an emergency manager, Kevyn Orr, to guide the city through the restructuring process. In March 2014, Kevin Orr and his team presented a restructuring plan to city creditors that includes required reinvestment in city services, but low returns for unsecured creditors. The city’s plan also includes transferring the Detroit Art Collection to a trust funded by a philanthropist, with the proceeds going to retirees only, not all creditors. Kevyn Orr and his team must now reach consensus on a plan that meets the city’s needs and is acceptable to its creditors.

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