Ben Margot, Associated Press
Members of the Stockton City Council listen to citizen statements Tuesday, June 26, 2012, in Stockton, Calif. Stockton officials continue to grapple with the city's financial plight, struggling to restructure millions of dollars of debt threatening to turn the city with the nation's second highest foreclosure rate into the largest American city to file for bankruptcy.

STOCKTON, Calif. — After deliberation with creditors and labor unions failed, Stockton, Calif., officials said it will file for bankruptcy, making it the biggest U.S. city to seek court protection.

According to the city’s upcoming budget, Stockton plans to default on $10.2 million in debt and cut $11.2 million in employee pay and benefits, according to Bloomberg. The cuts have led to high crime and unemployment rates.

“The city is fiscally insolvent and must seek Chapter 9 bankruptcy protection,” Stockton said in a statement to Bloomberg. “In addition to the bankruptcy petition, the city will file a motion with the courts to share information from the confidential mediation.”

At least 18 creditors were involved in negotiations with the city, including California Public Employees’ Retirement System, the largest U.S. pension fund, according to Bloomberg.

The bankruptcy isn’t likely to hurt the municipal-bond market, as some experts say it isn’t a concern.

“There’s been enough talk about municipal bankruptcy and worries about it that when one actually happens, it’s a little beside the point,” Matt Fabian, managing director of Concord, Mass.-based Municipal Market Advisors, told Bloomberg. “It’s hard to see one city’s faltering pushing the market weaker.”

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