Constitution, nor under the long-standing judicial principal of refusing to rule on inherently political questions.
Thirdly, the U. Constitution contains a section called the Contracts Clause. This bars states from breaching contracts with or between private citizens. This is to prevent states from abusing their control over the police and judicial system during contract disputes.
It would apply to existing obligations, such as employment contracts and pensions. Any state bankruptcy law would need to deal with this potential conflict. Courts may find a law that lets states walk away from their existing obligations, as bankruptcy is designed to do, unconstitutional on this basis. States are dealing with an unprecedented budget crisis brought on by a black swan event that has triggered a severe recession.
In theory they could raise taxes to cover their revenue shortfall. However, doing so would make life more expensive for citizens already struggling with the same wide-reaching crisis. They could also cut costs by laying off workers such as firefighters, police officers, teachers and civil servants, as state governments did in the wake of the financial crisis of However, that would add to the ranks of the unemployed and remove money out of increasingly weak consumer markets.
States have near-plenary power to raise revenue and cut spending. The issues are economic and political. If state bankruptcy matches the practice of municipal or corporate proceedings, a judge would oversee how the state restructures its obligations.
This would give the court system final say over how the state spends its money, an inherently political decision. The decision not to balance state budgets and instead file for bankruptcy is an inherently political act. This would make a traditional bankruptcy review difficult, and would once again raise serious questions about the legality and legitimacy of any bankruptcy process. State bankruptcy might look like a municipal bankruptcy. It would balance those against its assets, such as incoming revenue and any salable property.
The court would have to decide which costs a state must cut, which revenue sources to prioritize. Any bankruptcy would likely involve significant layoffs among state employees as part of cost cutting measures.
It is difficult, if not impossible, to predict the categories of state workers who would be cut during this process. At the same time, reductions in pension obligations would cut the income of retirees. This would not only reduce consumer spending power but would also impose potential financial hardship on retirees and elderly former employees.
Balanced budget provisions in state constitutions notwithstanding, many states issue bonds to cover certain expenses. Most often states borrow to finance capital projects , with the debt secured by the underlying asset. In the light of bankruptcy, state credit ratings would collapse as always happens with bankruptcy , almost certainly taking bond values with them. Beyond bond markets, the labor and consumer market would — again, almost certainly — take a hit as well.
In practice, however, no one really knows what this would mean. The details would depend on the laws Congress chooses to pass and how courts interpret their legality. State bankruptcy is uncharted territory for the U. Many state governments are doing their part to help residents survive the coronavirus economy. Learn about the programs available in your state. Inflation is at a year high.
But these Mad Money megatrends could help you fight back. In this article, we discuss the 15 best single-digit stocks to buy now. But there's a third key requirement. States have sovereign rights and would have to consent to participate. Even if they agreed, it wouldn't work, according to Bruce Markell, a Northwestern University law professor and former U.
He told Bloomberg Law , that because a state is sovereign, you can't have a federal oversight board overseeing the restructuring. Fiscal Policy. Personal Finance. Debt Management. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content.
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Your Money. Contact Attorney Joseph P. Doyle online or call for a free consultation. We have years of experience. Causes of Bankruptcy. What Are Common Causes of Bankruptcy? The common causes of bankruptcy include: Divorce Expensive Medical Bills caused by a disability or illness Poor Financial Management related to student loans , purchasing a car or home , etc. Reduced income or job loss Unexpected emergencies, such as a car breaking down or catastrophic damage to your property If an unforeseen tragedy has taken place and caused your financial circumstance to become negative, it is important to understand what the initial cause was so that it can be effectively solved.
Reasons Why People Go Bankrupt Termination of a Marriage Not only is a divorce personally traumatic, but it can also lead to financial problems. Medical Problems Illness and injury are not usually an expected situation. Mismanagement of Finances The mismanagement of finances is a cause of bankruptcy that affects many. Unexpected Job Loss With the current economy, an unexpected job loss is not an unlikely or rare occurrence.
Doyle for a Free Review It is important to contact an attorney to begin fighting your debt. Bankruptcy is an Opportunity for a Fresh Start. First Name Please enter your first name. Last Name Please enter your last name. Phone Please enter your phone number. This isn't a valid phone number. Email Please enter your email address. This isn't a valid email address.
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