City of Detroit.[Photo / Agencies]

Detroit?- Detroit filed the largest-ever municipal bankruptcy in US history on Thursday, marking a new low for a city that was the cradle of the US automotive industry and setting 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 an estimated $18.5 billion in debt that has crippled Michigan's largest city.

The future of retiree pension and health benefits for thousands of city workers hangs in the balance.

Anticipating the filing, investors drove prices of Detroit bonds and notes lower, sending their yields to record highs on Thursday.

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