Allowing Puerto Rico to restructure its public corporation’s debts in bankruptcy would help give the island’s economy some breathing room and politicians some authority to undertake further economic reforms, according to a commentary in the recent edition of The Weekly Standard magazine. The only problem is that as a U.S. territory, Puerto Rico cannot use chapter 9. The island tried to get around that obstacle by passing legislation that would have accomplished nearly the same thing as a chapter 9 restructuring, but a federal judge in Puerto Rico struck down the new law in February. Puerto Rico also has asked Congress to amend the Bankruptcy Code to treat it like the 50 states, and the House Judiciary Committee recently held a hearing on the issue. Absent some sort of restructuring under chapter 9, Puerto Rico’s situation may keep deteriorating until a federal role — along with a potential federal bailout — becomes necessary.
