California's Financial Crisis
Sacramento Bankruptcy Lawyer remarks on the financial crisis in California...
Being a Bankruptcy Attorney here in Sacramento, I can't help but regularly tap into California-relevant news such as the sources report that Governor Schwarzenegger has asked for $6.9 billion in federal funding in the state budget proposal, warning that state health and welfare programs would be in danger without the bail out funds. In addition to the aid, he called for $8.5 billion in cuts and $4.5 billion in alternative funding to balance the state's budget currently looming at $68 billion according to the California Sate Treasurer's office. It's been reported that a the last time an American state defaulted on their debt was in the 1840s and there is fear among economist and experts in this area that if California defaults, the impact would reach far beyond California's state line.
Although unlikely, experts have theorized that that California could enter into a court supervised bankruptcy, much like what happens when a large corporation defaults. All creditors of the state, which include lenders, vendors, employees, pensioners, to name a few, would share in the losses. There is no provision within the bankruptcy code for a state to file for bankruptcy however so it remains to be seen what would happen if California were to default on the public debt.
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