When Borders Dissolve

Scholars have long sought to apply principles from U.S. bankruptcy law to sovereign debt restructurings. Chapter 9 of the U.S. Bankruptcy Code, used to adjust the debts of municipalities, has been a particular source of inspiration, and several proposals currently exist to adapt chapter 9 to address the challenges of sovereign debt restructuring. The difficulties of applying chapter 9 in practice, however, have demonstrated the limitations of a one-size-fits-all solution to municipal distress. Similarly, attempts to adapt chapter 9 to apply uniformly to a broad range of sovereign states may be ineffective.

A recurring problem lies in the fact that bankruptcy principles are focused primarily on debt adjustment, while the problems that sovereign states (and, indeed, municipalities) face combine both financial and political aspects. This Article seeks to encourage scholars to look beyond the municipal bankruptcy comparison and offers a study of the challenges and results that occur when municipalities merge. Studying city-county consolidations offers unique insight into possible techniques to address the fiscal and political problems resulting from significant governmental financial distress. The distinct differences between city-county consolidations and sovereign governments have perhaps obscured the benefits of studying these two areas together.

This Article will demonstrate, however, that looking beyond the surface differences can provide valuable insight into new ways to address key fiscal and political challenges faced by government debtors.