A Proposed Solution: Utilizing Puerto Rico's Civil Code to Address Puerto Rico's Debt Crisis

Abstract

Puerto Rico is stuck in the midst of a staggering debt crisis with no apparent way to escape. The Commonwealth is currently overwhelmed by over 70 billion dollars in debt. Unable to pay its debts, Puerto Rico needs to restructure, but is precluded from federal bankruptcy and cannot pass its own bankruptcy regime. It appears that Puerto Rico is in an impossibly bad situation. However, the Puerto Rico Civil Code appears to provide a solution for Puerto Rico’s General Obligation bonds issued under Puerto Rican law. Our proposal involves a two-step process to help effectuate a negotiated settlement between Puerto Rico and its General Obligation bondholders in order to afford Puerto Rico some relief from its staggering debts. The first step utilizes provisions of the Puerto Rico Civil Code to bring the creditors to the bargaining table to negotiate a settlement, and the second step addresses the issue of the holdout creditor by applying the concept of joint creditorship. This proposal finds further support in the Louisiana Civil Code, which had similar provisions on its books despite federal bankruptcy law applying to it.