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Detroit, once the hub of America's car industry, has become the biggest city in US history to file for bankruptcy with debts estimated at $18.5bn, reported Sky News.
The federal bankruptcy court filing, which has been feared for months, puts the city on an uncertain course and sets the stage for a costly court battle with creditors.
The bankruptcy, if approved by a federal judge, would force Detroit's thousands of creditors into negotiations with the city's Emergency Manager Kevyn Orr to resolve the debt that has crippled Michigan's largest city.
The future of pensions and health benefits for thousands of city workers hangs in the balance.
Anticipating the filing, investors drove prices of Detroit bonds lower, sending their yields to record highs on Thursday.
In a letter accompanying the filing, Michigan Governor Rick Snyder said he had approved a request from Mr Orr to file for Chapter 9 bankruptcy protection.
In the letter, he wrote: "Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing."