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 $18.5 (€14.09) billion. 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."

Speaking after the announcement, Mr. Snyder, a Republican, said, "Let's stop the decline. Let's get to stability. Let's get things working in the right direction."

Mr. Snyder named Mr. Orr in March to tackle the city's spiralling long-term debt.

A White House spokeswoman said US President Barack Obama and his senior team were monitoring the situation in Detroit closely.

"While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit," White House spokeswoman Amy Brundage said.

Detroit was once a hugely prosperous car manufacturing centre that exemplified American progress. Its automotive giants switched production to planes, tanks and munitions during World War Two, earning the city the nickname of the "Arsenal of Democracy".

Now the city's name has become synonymous with decline, decay and crime.

Detroit has seen its population fall to 700,000 from a peak of 1.8 million people in 1950, and the city's government has been beset by corruption cases over the years.

City Mayor Dave Bing says he has done everything he could to avoid it.