The island has already defaulted on $221 million. But on May 1, $422 million is due. Two months later, another $2 billion is due. For over a year now, Puerto Rico has been telling the U.S. it needs to restructure its debt, and “Gov. Padilla has said that he will not make payments if it means depriving Puerto Rican people of essential services,” such as clean drinking water. So what can a nation do in such a situation? It can seek to file bankruptcy.

But not being sovereign has its pros and cons. One of the cons being, you don’t get to write your own bankruptcy laws. Just like every state and the territory of Washing, D.C., Puerto Rico is subject to Congress’ bankruptcy laws, and Congress said no in 1984 with an amendment to Chapter 9, “the part of the bankruptcy code for insolvent local governments.” Now, Puerto Rico is taking the issue to the Supreme Court.

  1. Obviously, declaring bankruptcy is going to affect a lot of people and businesses to whom Puerto Rico owes money. As a result, Puerto Rico will become a pariah.
  2. But defaulting on their loans will mean creditor lawsuits.
  3. Paying off their loans will mean that their citizens will be denied access to services such as electricity, water, sewer, highway, etc.

Which option would you choose if you were in charge of the Supreme Court?

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