An article today first appearing in the New York Times suggests that congressional aides are exploring the possibility of legislation that would allow states to file for bankruptcy protection.  

 You can read a summary of the article here:  The bankruptcy code currently provides the option for cities to seek bankruptcy protection, but does not provide that option for States. 

 The impact of such a move would be felt by a multitude of businesses and individuals, not the least of which would probably be those who are retired state employees.  Many states have constitutional provisions preventing reduction in vested retirement benefits.  As a result, any provision of the new federal law would likely be challenged on constitutional grounds.  In addition, individuals and businesses holding municipal bonds would likely be severely impacted as that debt might be restructured.  The idea is such an issue, that the mere suggestion or mention of such a law might have adverse impact on already struggling States.  It may become more difficult to borrow money if the investors believe that bankruptcy is a possibility for a State: something they have not had to consider previously.  This additional risk, however remote, is sure to increase the cost of acquiring credit.

 It is early on in the process and premature to speculate whether such a law would see the light of day.  It is, however, suggestive of the overall state of our nations economy that such a thing is even being considered.