On a simplistic level it's because all the tax payers moved out of the city. Detroits population peaked in the late 1950s at 1.8M people. It is currently at 700K. There simply isn't enough revenue to sustain the operations and debt previously incurred. I think the bankruptcy has been inevitable for a good 15 years, though the various administrations delayed it by borrowing to fund ongoing operations.

Why did people leave? Two main reasons in my opinion. Detroit always had significant racial tensions; there were race riots in the late 1940s and 1960s, and there were many, many lesser incidents that would not make the national news.

The second reason is the city services just absolutely stunk. For example, Detroit never plowed side streets, they did not have enough plows and personnel. The schools are as bad as any big city anywhere, and of course the crime rate in the 1970s was legendary. Because of this everyone fled. Mostly whites first, then blacks.

IMHO pensions and pay for city union employees isn't a big factor. The area was so heavily democrat leaning that elected officials did not need to buy off city employees with absurd compensation packages to stay in office. That said, the heavy union favoritism in south-east Michigan largely insured the area was unable to attract any business investment to replace the automotive sector as it went into decline.

My opinions only. I grew up in the area, though left immediately upon graduating from university - due to a lack of economic opportunity.