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Illinois - Detroit on Thursday became the largest city in US history to file for bankruptcy protection after decades of decline and mismanagement rendered the home of the nation's auto industry insolvent.
The bankruptcy is expected to make it harder for municipalities in Michigan - and across the country - to borrow money by undermining confidence in what used to be among the most trusted bonds available.
Michigan Governor Rick Snyder said there was no other option.
"The fiscal realities confronting Detroit have been ignored for too long," Snyder said in a press release.
"I'm making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future."
Once the fourth largest US city, Detroit has seen its population shrink by more than half - from 1.8 million in 1950 to 685 000 today - as crime, flight to the suburbs and the hollowing out of the auto industry ate away at its foundations.
"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder said in a letter accompanying the court filing.
"The only feasible path to a stable and solid Detroit is to file for bankruptcy protection."
Earlier this year Snyder appointed an emergency manager with a background in bankruptcy to restructure the Motor City's finances.
He said he had "very much hoped" the move would help Detroit avoid bankruptcy, but that now it is time to "face the fact that the City cannot and is not paying its debts as they become due and is insolvent."
Detroit stopped making payments on some of its $18.5 billion of debt and obligations last month as the emergency manager sought relief from creditors.
But the city's employee pension plans - which are owed some nine billion dollars - filed a lawsuit to prevent any cuts to retirement benefits.
The bankruptcy filing places that case on hold and comes days before what could have been a key hearing.
It will be up to a federal judge to determine if Detroit is allowed to restructure - and even shed - its obligations in a Chapter 9 bankruptcy.
"You can expect challenges right out of the box," said bankruptcy lawyer Douglas Bernstein of Michigan-based Plunkett Cooney.
It could take years for the case to be resolved, he warned.
"One of the biggest challenges is that there haven't been very many municipal bankruptcies in the history of the bankruptcy code so there's not a lot of guidance," Bernstein told AFP.
Pension funds are protected by the state constitution, but filing for bankruptcy in federal court ought to give Detroit a way out of its pension obligations because federal laws have precedence.
Snyder listed a host of problems that prove Detroit cannot meet its obligations to its citizens while weighed down by debt.
The homicide rate is the highest in nearly 40 years and, for more than two decades, Detroit has been on the list of the most dangerous cities in the United States.
People have to wait an average of 58 minutes for the police to respond to their calls, compared with an average of 11 minutes nationwide.
There are 78 000 abandoned buildings scattered across the city, and 40% of the streetlights don't work.
A lack of funds for maintenance and repairs means only a third of the city's ambulances work and police cars and fire trucks are also in poor condition.
The city has been borrowing money to pay its bills for more than a decade, a short-sighted move that raised costs.
Some 38 cents of every city dollar was going to debt repayment and obligations like pensions, and that was projected to hit 65 cents on the dollar by 2017.
The city's tax rate has reached its legal limit and even if it could raise rates, residents can't afford to pay more, Snyder said.
