What States Can Learn from Municipal Insolvency
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Description
Any discussion of a statutory regime for restructuring state debts inevitably invites comparison to the existing scheme for managing municipal insolvency under Chapter 9 of the Bankruptcy Code. This is not to say that a state bankruptcy regime would have to follow the procedures established for municipalities. One could imagine a state bankruptcy regime far different from the current form of Chapter 9, such as a minimalist regime that limited judicial intrusion or creditor intervention but gave the state substantial flexibility to impose an orderly mechanism for restructuring its debts, or a regime that covered only a subset of obligations that states incur. Nevertheless, examination of Chapter 9 should lead drafters of potential legislation governing states to avoid procedures that have proven inefficient in the municipal context and might even suggest that the entire enterprise of providing a federal scheme for state debt adjustment is misguided. That is not to say that a state bankruptcy procedure should simply reflect a “cleaned-up” version of Chapter 9. Many of the features of Chapter 9 reflect a constitutional relationship between states and their political subdivisions that is quite different from the relationship between the federal government and the states, and the relative autonomy of fiscally distressed states provides them with alternatives to bankruptcy that are less available to municipalities. This chapter explores the successes and failures of Chapter 9 and relates them to the options that states have for addressing their own insolvency.
Source Publication
When States Go Broke: The Origins, Context, and Solutions for the American States in Fiscal Crisis
Source Editors/Authors
Peter Conti-Brown, David A. Skeel, Jr.
Publication Date
2012
Recommended Citation
Gillette, Clayton P., "What States Can Learn from Municipal Insolvency" (2012). Faculty Chapters. 726.
https://gretchen.law.nyu.edu/fac-chapt/726
