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Can a State File for Bankruptcy?

Posted on in Bankruptcy Attorney Illinois

Can a State File for Bankruptcy?

As many residents know, Illinois is facing a financial crisis right now. Many people wonder if the state can file for bankruptcy to sort out its debt issues. It cannot.

Currently, Illinois is $14.6 billion in debt. The state has not had a budget for two years. Lawmakers are scrambling to find a solution to the state's financial issues. In order to pass any type of government action, the measure must receive a three-fifths majority approval from the state legislature.

Cities can File for Bankruptcy

Unlike states, cities can file for bankruptcy. The most famous case of a United States city filing for bankruptcy is Detroit's 2013 filing. This case has caused some to assume that like cities, states can also file for bankruptcy. The difference is that the federal bankruptcy code permits municipalities and local governments, but not states, to file for bankruptcy.

Illinois' Financial Future is Uncertain

Just because states cannot file for bankruptcy now does not mean this will be the case forever. Laws change as our nation needs them to change and in the future, there could be enough need for state bankruptcies that the federal government opts to alter the bankruptcy code. The concept of a state filing for bankruptcy to reorganize its debt is not a new idea. It has been discussed numerous times at different levels of government and among the general public, but the idea has never turned into a bill to change the existing bankruptcy code.

Illinois' current debt issues have caused other issues for the state, including a massive population drop. For the third year in a row, Illinois saw the greatest population exit out of all the states. Fewer people means fewer taxpayers, which in turn leads to less money for state projects. On July 1, 2017, road work across the state is scheduled to stop. Social services across the state have had to severely limit their operations or even close completely, stripping their communities of services like domestic violence shelters, mental health clinics, and drug rehabilitation centers. Amid the ongoing opiod crisis, rural communities have been hit especially hard by these closures. Eastern Illinois University's state funding has received less and less state funding over the past consecutive five years, and in fall of 2016, saw an enrollment of only 7,500 students. In 2006, the number of students enrolled was approximately 12,000.

Work with an Experienced Buffalo Grove Bankruptcy Lawyer

If you are facing difficulties managing your personal or business debt, consider using bankruptcy as a tool to get your debt back under control. But do not assume that bankruptcy is an easy process; it is not. To learn more about the bankruptcy process and what you can expect from your own case, contact our team of experienced bankruptcy lawyers at Newland & Newland, LLP today to set up your initial consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.

(image courtesy of Dayne Topkin)

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