When Detroit became the biggest city in U.S. history to file for bankruptcy last month, it turned public attention to the municipal-bond market, where cities and states go to borrow money. Was this sleepy, often-overlooked area of the financial world actually dangerous?

Is the city obliged to its past? Or can Detroit renege on its promises to thousands of retirees for the sake of its present city services?

Pension experts say that whatever decisions Detroit makes could set a precedent for retiree benefits in other cash-strapped cities and counties nationwide. To a degree, some precedent has exists, in Central Falls, R.I.

As the once-proud city of Detroit humbles itself in bankruptcy court, its financial future may hinge on this key question: Is the city obliged to its past? Or can Detroit renege on its promises to thousands of retirees for the sake of its present city services?