This is David Allen's second visit to Engine 40's fire station on Detroit's west side since February 2012 when a wall collapsed on him during a fire leaving him unable to walk without an aide. Last time he was here to clean out his locker. This time, as Detroit careens towards bankruptcy, he is back to talk with colleagues about their prospects.

Detroit's firefighters are used to danger and loss. The crew laugh and rib each other and Allen as they get ready to eat. But this time they are facing something other than fire. Beneath the camaraderie there is anger and fear.

Allen and his colleagues are among 30,000 Detroit city workers, past and present, who are about to learn what will happen to their pensions and healthcare if the city is allowed to file for a historic bankruptcy – the largest of its kind in history.

A decision could come as early as this week and will be logged by other struggling US municipalities. It is likely to have a profound effect on workers across the entire country.

Detroit has always been ahead of the curve. The birthplace of the automotive industry, Detroit revolutionised travel and created a middle-class army of skilled workers. Now it is forging ahead again, this time into darker territory. What happens to a city that promised its residents so much and now can not, or will not, deliver?

Allen, 50, has seen his wages slashed since his accident. He has got a pension of $3,000 (£1887) a month, for now, down from the base pay of $4,700, before overtime that could have added thousands more. He is unsure how much more cash will go if the bankruptcy goes through.

One proposal gives the city's 21,000 retirees 16 cents for every dollar. That would leave Allen with $480 a month.

Next year he faces a new dilemma. The city is offering him $200 a month to find his own health insurance. He has physical therapy three times a week for injuries that have left him with seven fused vertebrae.

"I don't even dare look online to see what it would cost. Someone told me it would [cost] thousands. Plus, I have two kids. One of them broke his finger last week playing basketball. A little accident like that could ruin everything," he says. "I knew this was a dangerous job when I took it. They told me it would take 10 years off my life. If I had to do the same thing again, I would. But the city promised me something. They promised me a pension and healthcare. I put my life on the line, then they changed the rules."

The fire station crew are worried and looking for answers.

"This has to be illegal," says Verdine Day, a firefighter who is running for president of the local union. "There's a federal disability act. Can the city just ride over that? At some point we have to stand up and fight."

Sometime after Wednesday, the federal bankruptcy judge Steven Rhodes will decide whether Kevyn Orr, the city's state-appointed financial controller, can declare Detroit officially bust. Rhodes has been listening to the two sides battle it out for weeks but has given few clues about which way he is leaning.

If Orr is blocked, Detroit faces a flood of litigation from vendors and contractors and yet more acrimonious negotiations between the city, state and unions as they try to tackle the city's debts of $18bn-$20bn. A win for Orr would allow him to rewrite pension and healthcare contracts constituting the largest part of what the city owes.

The affected workers are owed about $3.5bn, in total, in pension payments, and another $6bn in healthcare benefits. The average Detroit pensioner gets $19,000 a year; a deal that gave 16 cents to the dollar would cut the benefit to $3,040.

"There is no morality to what they are doing," says Steve Kreisberg, national director of collective bargaining for the American Federation of State, County and Municipal Employees, the city's largest union. "We are deserting our core values. People paid into these schemes. The city is proposing to pay back $300m to the banks. We should be looking at that before we start looking at retirees, widows and children. Everyone knows the city needs to do something and sacrifices have to be made."

Orr's supporters talked about everyone, the bankers and city workers, getting "haircuts". Kreisberg says: "To me that's disgusting. Seems like the haircuts UBS etc are taking don't compare to shaving some widow's head."

There is no doubting the scale of the financial problems in Detroit. Once a city of two million people and the envy of the industrial world, it is literally the crumbling edifice of its former self. The population has dropped from two million in 1950 to 700,000; close to half the street lights don't work. And the murder rate is at a 40-year high.

But for Detroit's city workers the idea that cutting their benefits is somehow the solution to this problem is anathema. "When Orr was appointed I knew this was going to be bankruptcy and we were going to get it," says Allen. "He said he was looking at the options, but come on – you look for a divorce lawyer when you want a divorce, so why do you look for a bankruptcy lawyer?"

For Donald Smith something more sinister is afoot.The 68-year-old retiree spent his life working for the city – at a hospital, guarding pictures at the Detroit Institute of Art, and later as a detention officer. Now, after bills and medication costs for a variety of illnesses, he is left with $300 a month spending money. He lives on hot dogs and tilapia when it's on sale. A corned beef sandwich is a treat, a car is out of the question.

"All those years they were taking money out of my wages. I was never rich but I never thought it would come to this," he says. "There are times when I have to decide whether I am going to eat or get my medicine. This was supposed to be the American dream? It's a nightmare. I love America but we are being persecuted by our own elected officials."

He blames the Republican governor, Rick Snyder, for this state of affairs. Snyder, whose campaign slogan is One Tough Nerd, has pushed for Michigan to develop more hi-tech jobs and offered billions in subsidies to businesses that move to the state; at the same time he has backed Orr on pensions and benefits cuts. "The message you are sending to the American people is that we are nogood. Well, I believe I am some good," he says.

He adds: "The bottom line is it's all about money. Stock markets are at record highs and we're getting poorer and poorer. You can't tell me there's nothing in that."

If the trends continue and the bankruptcy goes through, life for those on the lower economic rungs in Detroit will only worsen, he predicts. And after that, for other Americans in his position too.

"It used to be a race thing in this city. This is not a race thing, it's about class. There isn't going to be a middle-class in this country any more. If you haven't got the money to be in the country club, you are out in the cold. They say the banks are too big to fail but that's not true of the people – in fact they are going to help you fail."