What does it mean for a state to go bankrupt?

[rbroome]

@Saint_Cad

Here’s my question then. Suppose the state passes a law giving someone a certain amount of money if they meet certain criteria and the person meets those criteria, fills out the correct paperwork to get the money, etc. - basically doing everything they need to do for the money but before the money is distributed the state then says, “Naw we aren’t going to give you the money.” Is that a violation of the Contracts Clause? Promissory estoppel? Does my mileage vary based on the state/feds?

I believe this happens all the time in most if not all states. People get a legal judgement against the state-say a pothole on a state road damaged their car and they sue the state and the state loses the case. Or some other judgement. The state doesn’t refuse to pay, they simply put the judgement on the very long existing list of prior judgements and tells the claimant they will get paid when there is enough money. As long as the state pays some of the claims every year, this counts as paying the judgement. After all, no one expects the defendant to pull out a wad of cash in the courtroom and settle up right there. Everyone gets some time. For the state, it is a lot of time.

[rbroome]

As for the idea that the state could simply declare bankruptcy, I am not a lawyer but wouldn’t that mean that some judge would take control of the state finances and distribute assets to the creditors while maintaining essential services? Given that unlike a municipality, the state has essentially unlimited taxing power wouldn’t that be an asset? Wouldn’t the judge be obligated to raise taxes to pay all the creditors?

I agree this idea is just a political ploy by McConnell to extract concessions from the Dems. McConnell wants liability protection for businesses. Pelosi says she isn’t inclined to do that. negotiations and overheated rhetoric follow. Eventually a deal will be made.

[JRDelirious]

@Tim_T-Bonham.net

Well, historically, there were other states that were, for a while, other sovereign entities. But when that ended, and these ‘Confederate States’ were taken back, their debts were specifically not assumed. So the holders of these debts were just out of luck – they didn’t get paid.

The states that exist today *are *legally sovereign entities. In the case of the Confederacy, the terms of readmission were that any debt incurred during the rebellion be repudiated as null, so it’s what I stated: sovereign states *default *rather than go into protected bankruptcy.

@duffer

I’ve always wondered something that’s related. How exactly did it work when Miami declared bankruptcy and was, I think, just incorporated into Dade County? Correct me with facts of I’m not remembering this right. Was that handled by Florida courts or federal? How did it work? I’m assuming it might be precedent of some sort of states wish to do so.

Dade County changed its name to “Miami-Dade” in 1997 but the incorporated city of Miami exists continuously since 1896, they are not merged.

[RioRico]

@duffer

How exactly did it work when Miami declared bankruptcy…? I’m assuming it might be precedent of some sort of states wish to do so.

Bankruptcy of entities incorporated in a state (counties, towns, districts) are covered by federal laws. States constitutionally may not declare bankruptcy so no precedent there.

[duffer]

Thanks for the clarification.

[dtilque]

States could do what the federal government does when it needs more money: sell more bonds. Well, possibly that conflicts with the balanced budget requirements in some states’ constitutions, but I would expect that there are ways to get around those provisions during emergencies.

[md2000]

AFAIK “default” doesn’t mean the debt is cancelled - just that the required payments were not made on schedule. The debt is still outstanding, the only question is whether it will be paid in full the creditor’s lifetime. This becomes the basis for negotiations - “you want to get some money? How much will it take for you to forget about the rest?”

I guess the question is - would an overall legal control of the debt process be necessary to prevent someone from, let’s say, bringing along a bunch of sheriffs and their own court order to seize the computers in the DMV office as repayment for their personal debt?

(I read about someone after the 2008 crash whose house was wrongfully repossessed by the bank. They got a judgement against the bank, which it arrogantly tried to delay and ignore… what are they going to do to us? The couple took the court order and a few bailiffs(?) and started hauling the computers out of one of the branches. That got the head office’s attention.)