Stockton, Calif., became the largest U.S. city to take the extraordinary step of filing for bankruptcy. The city reluctantly filed Thursday, after a history of fiscal mismanagement compounded by a housing bust left the city swamped in debts. The city council had voted 6-1 Tuesday to seek rare federal Chapter 9 protection for the city of 290,000 in California's Central Valley. "We exhausted every other option," Stockton's mayor said, noting that the city is insolvent and faces a $26 million budget deficit. Retired public workers worried about benefits protested the move, and residents worried crime might rise. Stockton was a big beneficiary of the housing boom and a major casualty of its collapse. It had been in talks with creditors for months recently in an effort to avoid bankruptcy. The city could help set a precedent for how large municipal bankruptcies and reorganizations are treated — and in what instances federal bankruptcy courts allow them.