The governor of the US state of Pennsylvania has declared a fiscal emergency in the capital, Harrisburg.
Harrisburg City Council has rejected calls to implement a financial recovery plan and declared bankruptcy instead.
The BBC reports the city faces debts of $US458 million and has struggled to pay for services.
Governor Tom Corbett signed the takeover law last week, after it was passed by the Pennsylvania legislature.
Mayor Linda Thompson has challenged the legality of the vote.
Debt woes have plagued the city of 50,000 since 2010, when an incinerator project funded by municipal bonds failed to raise expected cash.
Harrisburg's federal petition for Chapter 9 bankruptcy lists six pending legal actions by creditors.
