Detroit's bankruptcy was challenged in court by government workers fighting to protect their retirement benefits as Michigan's governor insisted it is the only way for Motown to survive.
A county judge ordered that the proceedings be halted because it violates the US state's constitution, but it's not clear how much weight that would carry in federal bankruptcy court. The order was immediately appealed by Michigan's attorney general yesterday.
Saddled with more than USD 18 billion in debt and a shrunken tax base, the birthplace of the US auto industry has been so strapped for cash it can't even keep the streetlights on.
"Now is the opportunity to stop 60 years of decline," Governor Rick Snyder said at a news conference a day after approving the biggest municipal bankruptcy in American history.
"We will come out with a stronger, better Detroit and a format to grow this city. The citizens of not just this city but the state deserve it."
Once a bustling beacon of industrial might, the Motor City is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.
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 bankruptcy is expected to make it harder for municipalities in Michigan and other US states to borrow money, by undermining confidence in what used to be among the most trusted bonds available.
Snyder insisted there was no other "viable" option because the city is "broke," with 38 percent of its budget spent on debt and pension obligations.
The situation in Detroit is being closely monitored by government workers across the country who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.
About nine billion dollars of the city's debt is owed to the pension funds and retiree health care benefits of the Detroit's 10,000 employees and 20,000 retirees.
State-appointed emergency manager Kevyn Orr said the city simply does not have the money to cover all its outstanding debts.
"Yes, there are 10,000 employees. Yes, there are 20,000 retirees. But there are 700,000 citizens who don't deserve 58 minute (police) response times," Orr told reporters