The city of Detroit filed for bankruptcy on July 18th 2013, and is by far the largest municipal bankruptcy in American history. The reasons why it has gone bankrupt are complex and go back a long way.
As with any individual or organisation required to spend vast sums of money in a relatively short space of time, cities must often borrow money from elsewhere and, as when a person borrows too much, or invests or spends that money unwisely, a city may find it cannot pay back its debtors. In the case of Detroit, those debts amount to somewhere in the region of $18 billion dollars. With no money to pay back its debtors, and a lack of willing investors given decades of decline and mismanagement, Detroit filed for what is known as a 'Chapter 9 bankruptcy.' The fact that Detroit is a city and not an individual makes no difference - if you cannot pay your debts, and have no feasible income, you can be declared bankrupt.
Detroit is Not the First Place to Be Declared Bankrupt
Jefferson County, Alabama, filed for bankruptcy in 2011. Around the words, Taranto in Italy was declared bankrupt in 2006, likewise Akaike, Japan in 1992. The Canadian province of Newfoundland also found itself bankrupt way back in 1933. This public broadcasting video explains the consequences of municipal bankruptcy: