By Peter Schroeder – 07/05/15 12:09 PM EDT
Advocates of the change say it would resolve a technical oversight from a decades-old bankruptcy law, while skeptics warn that it could throw into question billions of dollars in debt now owned by investors across the country.
Earlier this week, Puerto Rico’s governor declared that the nation’s $72 billion pile of debt was too much for it to handle. To avoid a “death spiral,” Gov. Alejandro Garcia Padilla said the commonwealth would have to break its promise to pay back some money owed.
But a quirk in the nation’s bankruptcy code is throwing Congress into the middle of the matter, as lawmakers will need to quickly pass a new law if Puerto Rico is going to gain access to the nation’s bankruptcy courts.
Puerto Rico’s nonvoting representative, Resident Commissioner Pedro Pierlusi (D) is working to build support for legislation that has simmered in Congress for months, but has taken on new urgency following the governor’s declarations.
Sens. Chuck Schumer (D-N.Y.) and Richard Blumenthal (D-Conn.) are working to build support for similar legislation in the Senate.
A 1984 update to the nation’s bankruptcy laws left Puerto Rico out of the picture, apparently by accident. Chapter 9 of the bankruptcy code gives states the power to allow agencies or municipalities to declare bankruptcy, as happened most recently in Detroit. But the law is silent on territories like Puerto Rico, leaving it on the outside looking in when it comes to public bankruptcies.
“As best we can tell, it’s a typographical error in the bankruptcy code,” said John Pottow, a bankruptcy expert and legal professor at the University of Michigan. “It should be noncontroversial.”
Giving that power to Puerto Rico would allow some of its subsidiaries, like a debt-laden power utility, to enter into bankruptcy court, giving the territory some breathing room on its finances.
Lawmakers pushing to address that change say it was a simple oversight, and Puerto Rico was always supposed to have the same ability as the states.
https://thehill.com/policy/finance/246820-puerto-rican-debt-crisis-hits-congress
