The fiscal crises of states in the wake of the Great Recession has prompted an extensive and heated discussion about the advisability of Congress adopting a federal solution, such as, most notably, amending the Bankruptcy Code to allow states to file for bankruptcy, as municipalities already are able to do under Chapter 9.
The mere prospect of a state bankruptcy option has generated more opposition than support, and the most oft-repeated criticisms are that it would roil public debt markets and make it prohibitively expensive for states to borrow in the future, as bond investors would require a steep premium for the possibility of a bankruptcy filing.
