Personal Finance

What happens when cities go bankrupt?

By: Adrian BusseUpdated: December 11, 2020


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As a result, modern Chapter 9 fillings don't work quite like other bankruptcies. When a city goes bankrupt, the judge's primary job is to make sure that it's eligible to file and to approve its plan for paying off the debt. In particular, the judge can't order a city to liquidate its assets to pay off creditors.

Considering this, what happens if government goes bankrupt?

Originally Answered: What will happen to a country if they go bankrupt? Bankruptcy means that you default because you are unable to pay interest on your debt. A government that is unable to borrow money may run into even more financial trouble as they won't be able to spend money on the country.

Beside above, can a government go broke?

A big part of the issue: As the law stands right now, states can't declare bankruptcy. But the controversy points to a broader problem states across the country are facing — their costs have skyrocketed and their revenue has plummeted, and unlike the federal government, they can't run a deficit.

Can the US go broke?

Under the Constitution, bankruptcy is a power entirely reserved to the federal government. An American bankruptcy is overseen in federal court, by a federal judge, according to federal law. That's why federal law can allow U.S. cities to go bankrupt, as many have done over the years.

What is the most broke state in the US?

10 states where residents have the most debt, ranked by DTI
Rank State (including D.C.) Debt-to-income ratio
1. Washington, D.C. 1.09
2. Colorado 1.05
3. California 1.04
4. Arizona 0.96


Why did Detroit go bankrupt?

Detroit's bankruptcy is, at its core, a cash flow problem caused by its inability to bring in enough revenue to pay its bills. Detroit's bankruptcy was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk.

Can States default on debt?

If a state, for economic reasons, defaults on its treasury obligations, or is no longer able or willing to handle its debt, liabilities, or to pay the interest on this debt, it faces sovereign default.

What happens when a country fails to pay its debt?

When a country fails to pay its creditors on time, it is said to go into “default”, the national equivalent of going bankrupt. And when Greece defaulted in 2012, bondholders were forced to take hits as high as 50%. In less severe cases, countries may choose to restructure their debt by requesting more time to pay.

What happens if a country refuses to pay its debt?

When a country does this, it's known as a sovereign default. This is when the country cannot repay its debt, which typically takes the form of bonds. So if the US were to default, it would essentially stop paying the money it owed US Treasury bond holders.

Which countries are broke?

Rank Country GDP-PPP ($)
1 Burundi 727
2 Central African Republic 746
3 Democratic Republic of the Congo 791
4 Malawi 1,234

Who does the US owe money to?

The public holds $19.7 trillion, or 77%, of the national debt. 1? Foreign governments hold about a third of the public debt, while the rest is owned by U.S. banks and investors; the Federal Reserve; mutual funds; state and local governments; and pensions funds, insurance companies, and savings bonds.

What happens when a country's economy collapses?

If the U.S. economy collapses, you would likely lose access to credit. Banks would close. Demand would outstrip supply of food, gas, and other necessities. If the collapse affected local governments and utilities, then water and electricity might no longer be available.

What happens if the world goes bankrupt?

Bankruptcy means that you default because you are unable to pay interest on your debt. A country that declares bankruptcy will be unable to borrow money because defaulting also means that your acclaimed credit, in this case to other countries, is lost.

What happens if a country has too much debt?

Failing to pay back your debt would require your country to declare bankruptcy (or drop out of the global financial system altogether). This is based on the debt to GDP ratio. If your debt to GDP ratio is too high (say, 10 to 1) that means it might be quite difficult for the country to pay back all that debt.

What happens if a county goes bankrupt?

This is the definition for a “debtor” anyway, someone, legal or flesh and bone, who is unable to pay their obligations in full and on time, as they come due. When cities or counties go bankrupt, their bond holders (for schools etc.) lose their shirts. Cities also suffer with retirement (ERISA) worries.

What happens if a country prints more money?

Printing more money doesn't increase economic output – it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices.

Where do countries borrow money from?

A country can borrow on their own credit markets or they can borrow overseas. If they borrow overseas they have greater access to funds in foreign currency, but they are bound by overseas laws.

Which countries have defaulted on their debt?

Other countries that have recently defaulted on sovereign debt include Pakistan, Ukraine, Ivory Coast, Moldova, Uruguay, Nicaragua, Grenada, the Dominican Republic, the Seychelles and Cyprus.

Who owns most of the US debt?

Japan is the largest holder of U.S. debt, with $1.268 trillion in Treasury holdings. This is the highest level of debt owned by Japan in several years, beating out China as the largest holder of U.S. debt.