A federal judge has approved Detroit's plan to exit the largest municipal bankruptcy in US history, restructuring its $US18 billion ($A19.48 billion) debt.
Judge Steven Rhodes ruled that the plan meets the legal requirement under Detroit's Chapter 9 bankruptcy to help the city of Detroit and the state of Michigan, giving the Motor City a fresh start on the road to recovery.
"This is an historic day not just for Detroit but for our region and our state," said Judge Gerald Rosen, the lead bankruptcy mediator.
Entering bankruptcy protection in July 2013, the heart of the US automobile industry was saddled with more than $US18 billion in debt and a tax base depleted by decades of population loss and urban blight.
After several weeks of hearings, the exit plan the federal court approved cancels about a third of Detroit's long-term debt, or $US7 billion, creates a commission to oversee the city finances and requires a cost-cutting restructuring.
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According to US media reports, part of the funds freed up by restructuring the debt will be reinvested in badly battered public services such as fire and police departments.
Some of the money would be used to attack widespread urban blight in the city, where 80,000 homes and buildings have been abandoned.
"It's not the end, not even the beginning of the end, but maybe the end of the beginning," said Rosen, paraphrasing Winston Churchill's comment on a British victory during World War II.
"Detroit has a grand future," Michigan Governor Rick Snyder said at the news conference, but "there is more work to be done."
Home to the Big Three automakers - General Motors, Ford Motor and Chrysler - the city has been on the decline for 60 years.
It has lost half its population and crime is rampant.
The situation in Detroit is being closely monitored by government workers across the country, who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.
Nearly half of the city's debt is to underfunded pension plans and retiree health benefits.
"To the current leadership of the city, you are about to get your city back from us in the bankruptcy world," said Judge Rhodes in his decision.
"We give it back to you with the fresh start that this city needs and deserves under our federal bankruptcy laws. We hope we helped."
