State Bankruptcy

Steven Schwarcz, law professor at Duke, has an article forthcoming in the May 2012 issue of the UCLA Law Review discussing the issue of state "bankruptcy."  He argues that the bankruptcy of a state cannot fit appropriately into the present bankruptcy framework, because state sovereignty both carries implications for the health of the nation's credit system, and obviates the need for conventional protections like the automatic stay.  He says adding states to the Chapter 9 framework will likely create more problems than it solves.  However, avoiding default without a federal bailout will be difficult without some level of debt restructuring assistance.   He suggests a "minimalist framework" to help with binding holdout creditors while avoiding the worst credit problems.  It's an interesting read.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1807944

-Cassidy Hunter Hayes