Nearly two years after a “fierce” debate that “fizzled as quickly as it started,” University of Pennsylvania law professor David Skeel is arguing that the idea of giving states a way to file for bankruptcy remains relevant and necessary.

In addition to corporations and consumers, today’s Bankruptcy Code allow municipalities like cities to seek court protection. But there’s currently no chapter set aside for states that find themselves teetering on the brink of insolvency, nor have states needed one.

Yet with major budget deficits, underfunded pensions and declining tax revenues, some say states should have a legal framework to restructure.

Skeel advocated the idea of state bankruptcy in The Weekly Standard as well as in the pages of The Wall Street Journal between November 2010 and January 2011, and the view picked up steam once Newt Gingrich and Jeb Bush added their voices. Congressional Republicans began mulling legislation to introduce a state chapter to the Bankruptcy Code, but House Majority Leader Eric Cantor shot it down after the bond market warned that such a move would drive up borrowing costs, hurting healthy and distressed states alike.

In recent days, the state bankruptcy idea—unpopular among conservatives and liberals alike—has reared its head again. Skeel spoke on the topic last week at the University of Houston’s law school and again Thursday at the American Enterprise Institute. He says the topic is relevant in part because of the spate of municipal bankruptcy filings filed over the past two years, including those of California’s Stockton, San Bernardino and Mammoth Lakes…..

Read article here