States can’t go bankrupt, only default

Mitch McConnell's suggestion that banks should go bankrupt would require Congress to amend federal bankruptcy code, which has never allowed a state to declare bankruptcy.

By

National News

April 29, 2020 - 10:10 AM

Senate Majority Leader Mitch McConnell (R-KY) speaks to reporters in the Hart Senate Office Building on Capitol Hill in Washington, D.C., on March 20, 2020. Photo by (Drew Angerer/Getty Images/tNS)

WASHINGTON — Senate Majority Leader Mitch McConnell’s suggestion last week that he’d rather let states go bankrupt than see Congress rescue their coronavirus-decimated budgets raises the question: What would a state bankruptcy look like?

It would first require Congress to amend the federal bankruptcy code, which has never allowed state governments to declare bankruptcy. Municipalities — broadly defined as a town, city, county or other subdivision of a state, like a school district or independent authority — have been allowed to declare bankruptcy since 1937, but for states the only option would be defaulting on their debts.

It’s unlikely McConnell will be able to persuade the rest of Congress to go along with amending the bankruptcy code. His comments were met with swift and harsh backlash.

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