Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is Chapter 7 Bankruptcy?”
Puerto Rico is a territory of the United States, and as such, it wants to treat its debt like Detroit and other stateside municipalities—and like Uncle Sam himself. That is, it wants to spend into oblivion—or to the brink of bankruptcy—and then use bankruptcy or quasi-bankruptcy to bail itself out.
The island’s government agencies have amassed public debt to the tune of $73 billion. The woes are so great that political leaders are worried the commonwealth will be unable to meet its short-term debt obligations, which could jeopardize even basic “public-safety responsibilities” to the island’s 3.5 million residents, according to Bloomberg News.
Puerto Rico’s electric-power authority, Prepa, was working on a restructuring plan that could have caused bondholders to sustain substantial losses. Prepa is not the only struggling public utility, however, and Bart Mosley, co-president of Trident Municipal Research in New York, told Bloomberg that the island nation may soon be forced to undertake “something that looks like sovereign debt-restructuring at some point with the general-obligation debt.”
Last summer, the commonwealth passed what was, in essence, a local bankruptcy law, which provided the struggling utilities more leverage in its negotiations with creditors. On Feb. 6 of this year, however, a federal court struck down the law on the basis that it violated the United States Constitution because it allowed a state government to modify municipal debt.