Capitol Hill Discusses Bankruptcy for States

Should bankruptcy protection be an option for states, just as it is for individuals and businesses? It is an idea floating around in discussions on Capitol Hill. Although not yet introduced as formal legislation, the controversial proposal has raised some eyebrows.

With more and more states carrying huge budget deficits, the proposal would allow them to seek bankruptcy protection. Proponents say it would give states a fresh start, just as a Chapter 7 does for individual debtors. Former House Speaker Newt Gingrich voiced his support for the measure, saying it would avoid future federal bailouts of states.

Others, however, have not been so supportive of the idea. Critics argue it would increase interest rates, raise the costs of state government and make financial markets more volatile. In addition, bankruptcy protection would allow states to escape financial obligations, which would include negotiated deals with its public workers. The result would be lost pensions and retirement benefits for many people.

More critics say that bankruptcy for states is unnecessary because, unlike individuals and businesses, states enjoy sovereign immunity. Creditors cannot sue a state and seize its assets, thus protection through the bankruptcy courts is unnecessary. Furthermore, states have ways of raising revenue, such as raising taxes or cutting budgets. States have unlimited taxing power and can solve their own problems, one critic added.

States cannot file for bankruptcy, but you can contact a Washington DC bankruptcy lawyer if you are experiencing debt problems. A free consultation with an experienced Washington DC bankruptcy attorney can help you re-gain control of your financial life.



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