The American city of Detroit has filed for Chapter 9 bankruptcy with debts of at least $US15 billion.
Emergency manager Kevyn Orr, who was appointed by the state of Michigan, on Thursday asked a federal judge to place the city into bankruptcy protection. If approved, he would be allowed to liquidate city assets to satisfy creditors and pensions.
In June this year, Detroit stopped unsecured-debt payments to keep the city running. Mr Orr proposed a deal then in which creditors would accept 10 cents on the dollar of what they were owed. The BBC reports he suggested at the time that there was a 50:50 chance of the city needing to file for bankruptcy.
In a letter accompanying Thursday's filing, Michigan's Governor Rick Snyder said he had approved the request from Mr Orr to file for Chapter 9 bankruptcy.
"Only one feasible path offers a way out. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations," he said.
"It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available.''
Mr Orr has said that the city's long-term debt could actually be between $US17 billion and $US20 billion.
The bankruptcy could take years to sort out, just as the private sector is picking up. Downtown commercial and residential occupancy are at record levels.
Poster child for urban failure
Detroit was once the fifth largest city in the United States with a population of 1.8 million in 1950, but has endured decades of financial problems as large factories closed.
Between 2000 and 2010, the city lost 250,000 residents and the population was less than 700,000 by 2012.
Detroit is a poster child for urban failure. Public services are in a state of near collapse. It has also had a series of corruption scandals over the years, while the murder rate is at a 40-year high, the BBC reports.
The unemployment rate, which was 18.3% in June 2012, has nearly tripled since 2000. About 70,000 properties are abandoned and great swathes of the city need to be written off.
Last year, three cities in California - Stockton, Mammoth Lakes and San Bernardino - filed for bankruptcy.