Municipal Bankruptcy in "the Oldest Colony in the World" After Puerto Rico v. Franklin California Tax-Free Trust and PROMESA

Abstract

Puerto Rico is in the midst of "the most acute fiscal crisis" in its history. Responding to the crisis, Puerto Rico enacted the Puerto Rico Corporation Debt Enforcement and Recovery Act (Recovery Act) to help alleviate the debt held by its municipal utilities. Since 1984, the Federal Bankruptcy Code has prohibited Puerto Rico from authorizing its municipalities to file for bankruptcy under Chapter 9. The Recovery Act attempted to create a municipal-bankruptcy procedure, but an immediate challenge brought by a group of bond investors found its way to the Supreme Court. In Puerto Rico v. Franklin California Tax- Free Trust, a five-to-two majority found that § 903 of the Federal Bankruptcy Code preempted the Recovery Act.