Document Type


Publication Title

Widener Law Journal

Publication Date



The City of Detroit's filing for municipal bankruptcy in July, 2013, has added to a continuing controversy of whether general obligation bondholders have a secured lien. The City of Detroit claimed its general obligation bondholders did not have a fully secured lien because the law of the state of Michigan did not create a statutory lien. Without the creation of a lien by state law, during the insolvency or bankruptcy of municipalities, general obligation bondholders will potentially have a mere promise to pay versus a binding obligation to pay, and therefore, will not have a secured lien. Treating otherwise secured general obligation bonds as unsecured will create more risk for investors and increase the cost of borrowing for cities. This article discusses the treatment of general obligation bonds in recent municipal bankruptcies; identifies the states that create a binding obligation to pay general obligation bondholders; describes problems of not treating general obligation bonds as secured; and proposes that states create clear laws that grant statutory liens for general obligation bondholders.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.