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Michigan cities also struggle with long-term debt

Consumers in Michigan aren't the only ones struggling with debt these days. Many municipalities throughout the state are also trying to cover expenditures and costs with reduced budgets, with varying degrees of success. Falling property values have translated into less property tax income for city governments.

Detroit has been on the losing end of that battle, fighting to remain solvent for many months. According to current reports, the city has a deficit of about $327 million and owes more than $14 billion in long-term debt.

The city's finances have become so bleak that Michigan Governor Rick Snyder recently declared Detroit to be in a financial emergency. If the state takes over, a three-member emergency loan board appointed by the governor would select an emergency manager to manage the city's finances. If that happens, Detroit would become the sixth Michigan city to be put under state control.

On an individual level, the same approach to unmanageable debt can also achieve positive results. With either a Chapter 7 or Chapter 13 individual filing, a consumer will request court intervention. The court's involvement means that creditors no longer can take collection actions against the individual, pursuant to the court-imposed automatic stay. That breathing room can help an individual debtor once again regain financial footing.

Bankruptcy laws also provide different options, depending on the long-term goals of a filer. Individuals with significant equity in assets such as a house or car may prefer a Chapter 13 filing. With the court's help, an individual in Chapter 13 will make payments to creditors through a court-approved repayment plan, typically over a period of three to five years. At the end of that period, most of an individual's debts will be discharged. An attorney can advise potentials struggling with debt of these various filing options.

Source: Bloomberg, "Michigan Governor's Move Sets Detroit Takeover in Motion," Chris Christoff, March 3, 2013

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