Constitution May Thwart Bankruptcy Option For States

Law360, New York (January 24, 2011, 8:16 PM EST) -- As Congress prepares to explore bankruptcy as an option for relieving burgeoning state debt burdens, a proposal that would allow states to declare bankruptcy may already be impossible due to certain constitutional impediments, lawmakers and other observers say.

The idea of a state bankruptcy option has gained traction recently, with the U.S. House of Representatives Judiciary Committee set to hold a hearing in two weeks that will investigate the possible issues that could arise, according to committee Chairman Lamar Smith, R-Texas.

“While bankruptcy for states may...
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