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Senate Democrats Introduce Bill to Give Puerto Rico Equal Access to Federal Bankruptcy Protections

Senators Richard Blumenthal (D-CT) and Charles Schumer (D-NY) introduced legislation yesterday to grant Puerto Rico the ability to declare bankruptcy for its municipalities and public utilities and avoid the growing fiscal crisis in the U.S. territory.  The legislation, which is identical to a proposal introduced in the House of Representatives by Puerto Rico Resident Commissioner Pedro Pierluisi (D-PR), would provide the U.S. territory with the same level of authority currently granted to states.

“This measure is vital to prevent a humanitarian and financial catastrophe – a clearly avoidable disaster,” said Blumenthal. “Creditors, investors, ordinary citizens, all will be harmed if the Congress fails to act. This measure is not a bailout – involving not a dime of federal funds. It enables an orderly, rational restructuring of debt, instead of a financial free for all and potential free fall.”

“We can either do the right thing and give Puerto Rico the bankruptcy option it needs and deserves, or we can risk a disaster on the island and billions in bailout payments later,” explained Schumer. “Allowing Puerto Rico’s municipalities to go through the bankruptcy process, just like other American municipalities, is the right way to begin untangling the fiscal mess on the island, and I hope both parties will come together to get this done.”

While the government of Puerto Rico is treated like a state for every other purpose of the Bankruptcy Code, the 1984 Bankruptcy Amendments and Federal Judgeship Act expressly excluded Puerto Rico from Chapter 9, governing municipalities. This means the government of Puerto Rico lacks the power that states have to authorize its municipalities to enter into Chapter 9 proceedings. At the same time, federal courts have recently held that Puerto Rico cannot pass its own bankruptcy rules.

Under the legislation, the Puerto Rican government would have the same ability to authorize its municipalities to enter Chapter 9 proceedings that states currently possess. This power would apply to debts, claims, and liens created before, on or after the date of enactment.


Senators Blumenthal and Schumer of New York were joined by ten of their Democratic colleagues in sponsoring the bill:

  • Senator Harry Reid of Nevada
  • Senator Kirsten Gillibrand of New York
  • Senator Bill Nelson of Florida
  • Senator Robert Menendez of New Jersey
  • Senator Cory Booker ofNew Jersey
  • Senator Elizabeth Warren of Massachusetts
  • Senator Martin Heinrich of New Mexico
  • Senator Christopher Murphy of Connecticut
  • Senator Bernie Sanders of Vermont
  • Senator Mazie Hirono of Hawaii.

Rep. Pedro Pierluisi thanked the Senators for their support:

I want to thank the senators who introduced and cosponsored the companion bill to H.R. 870, and I am looking forward to working with these senators to gain additional support for the bill from both Republicans and Democrats.  Because Puerto Rico is a territory and not a state, the 3.5 million American citizens that live in Puerto Rico cannot elect senators to protect and promote their interests.  Instead, we must rely on the goodwill of senators who were not elected by island residents and are not directly responsible to them.  Today, a number of senators stepped up to the plate.  They did so because this bill clearly is the right thing to do and the smart thing to do, both for the economy of Puerto Rico and for the broader U.S. economy.



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