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Detroit's financial woes persist; bankruptcy is still an option

For the last several years, the city of Detroit has been going through serious financial trouble. Since we last discussed the long-term debt issues faced by multiple Michigan cities, the state has taken over Detroit and its finances. At this time, the city hasn't officially filed bankruptcy, but some officials are preparing for the possibility.

Although the bankruptcy process for municipalities is much different than business bankruptcy, many of the underlying issues are the same. When debt persists, companies can focus on little else, which can completely squash any progress. When a business entity reaches this point, debt can be overwhelming and bankruptcy may be the only option to move forward.

One of the things businesses in debt may have to do to find debt relief is to sell of assets. At this time, the city of Detroit is considering auctioning off one of its biggest assets: its art collection. Housed in the Detroit Institute of Arts, observers believe the collection could be worth as much as $15 billion. A number of highly valued pieces, including works by Rodin and Van Gogh, are owned by the city.

News that the city's art might be sold is alarming to a number of people. In fact, some state lawmakers are working on passing a law that would prevent the sale of the art. However, it's been noted that "federal bankruptcy laws tend to trump state laws." This fact points out how complicated bankruptcy proceedings can be.

As state officials continue to sort through Detroit's debt issues, businesses throughout the state should be reminded that financial hardship can even overwhelm an entity as large as a major city. furthermore, it also shows that there are ways out of debt, which can set the stage for renewed success.

Source: Bloomberg Businessweek, "In Bankruptcy, Detroit Could Sell Off Its Art Collection," June 4, 2013

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