Puerto Rico’s Debt Relief Bill

Although Illinois is drowning in public debt, we are certainly not alone. Recently, the media spotlight has been on the Commonwealth of Puerto Rico and the fact that it owes approximately $73 billion in public debt. Proposed debt relief plans for Puerto Rico are particularly interesting from a legal point of view given that the Commonwealth is a territory, and not a state. The United States Supreme Court highlighted this distinction recently in a new ruling, which notes that Puerto Rico is not sovereign.

Apart from indicating that the Puerto Rican people are not sovereign, the Supreme Court’s ruling also denied Puerto Rico access to debt relief under the United States’ federal bankruptcy laws. This means that American states can permit their cities to access debt relief under Chapter 9 of the bankruptcy code, however, Puerto Rico cannot. Due to the fact that federal bankruptcy laws can not provide a path to recovery for Puerto Rico, its debt must be addressed in some other way, and quickly because the island is facing default on a $2 billion payment due July 1st.

Puerto Rico’s Debt Restructuring Bill

In an effort to help Puerto Rico dig out from under its debt obligations, the U.S. House of Representatives passed a bill that would enable Puerto Rico to restructure its public debt. According to the Chicago Tribune, conservative representatives are quick to note that the bill is not a federal bailout as it does not propose using U.S. tax dollars to mitigate Puerto Rico’s debt. Rather, the bill would allow Puerto Rico to restructure its debt via a process outside of formal bankruptcy.

If passed into law, the bill would also establish a federal oversight board charged with monitoring San Juan’s spending in order to promote financial health and stability for the territory. The board would consist of seven members appointed by the President of the United States. This body would have the collective power to veto any overspending that Puerto Rico proposes, as well as participate in debt relief negotiations with Puerto Rico’s creditors. The idea is that the board will remain in place until the Puerto Rican government balances four budgets in a row. A similar oversight board was successfully established back in the ‘90s for the District of Columbia. However, some who oppose the bill argue that this requirement is a huge overstep by the federal government.

Regardless of whether you support the bill or not, the fact remains that Puerto Rico’s debt is staggering for an island with 3.5 million inhabitants and that the situation is serious. Reports indicate that the Puerto Rican government is having a hard time providing sufficient public utilities and that unemployment is approximately 12 percent. Hopefully an effective debt relief plan will be implemented soon to help the people of Puerto Rico.

How Can We Help You?

Debt relief for individuals comes in several forms. If you are struggling with debt in the Chicago area and would to consult an experienced bankruptcy lawyer for advice, contact the Bentz Holguin Law Firm, LLC today at 312-647-2116.