A federal judge on Tuesday gave the green light for the financially beleaguered city of Detroit, Michigan, to proceed with plans to declare itself bankrupt after years of economic decline, making it the largest such municipality to do so in U.S. history.

Home to the great manufacturing corporations of the U.S. such as General Motors, Ford and Chrysler, Detroit initially filed for Chapter 9 bankruptcy protection in July 2013 after accumulating $18.5 billion debt and becoming unable to resolve negotiations with thousands of creditors.

Though the city’s emergency financial manager Kevyn Orr has until March 1 to finalise proposals to tackle Detroit’s debts, fears that public pensions could face deep cuts were heightened after the judge in the case, Stephen Rhodes, found on Tuesday that Mr. Orr “did not negotiate in good faith with creditors prior to the city's July 18 bankruptcy filing.”

Though Judge Rhodes promised that he would not “rubber-stamp” any plans to slash pensions, and proposals to raise Detroit’s revenues through a range of options including property sales and art auctions have been floated, protestors took to the streets after the ruling.

One of them, former city worker David Sole, told news channels, “We think taking a dime or a dollar from pensions is too much. To do what? To pay the banks off. The banks are considered secured creditors, we are garbage.”

Issuing his ruling, Judge Rhodes said that he had taken into consideration the breakdown in Detroit’s public infrastructure, its rising crime rate and the fact that the city was struggling to provide even the most basic police, fire and emergency services to its 700,000 residents.

According to reports, nearly 40 per cent of the city’s streetlights do not work, the city has close to 78,000 abandoned buildings and the average police response time is 58 minutes, said to be more than five times the national average of 11 minutes.

With their fate hanging in the balance until early next year, it may be the people of Detroit, particularly pensioners, who stand to lose much either way.

Sharon Levine, a lawyer for Detroit employees said, “We think it is a devastating day today for the citizens of Detroit. The constitutionally protected pension clause is now at risk. We obviously argued strenuously that the city did not bargain in good faith. This is bad for Detroit and sets a bad precedent for other cities.”

It accumulated $18.5 billion debt and was unable to resolve negotiations with thousands of creditors.