At present it is not possible for states to file for bankruptcy protection as it is against the law. But this may change if a group of conservative lawmakers have their way in Washington. There is an initiative to get Congress to amend the law and permit states to file for bankruptcy. At present, about half of the municipalities in the states are allowed to do so.

Those who propose the idea say states with huge budget deficits like California would welcome it. These states are facing massive unfunded healthcare and employee benefit hence when they are allowed to file for bankruptcy, it would permit them to have all their deficits laid out and a systematic plan for recovery plotted out.

Please see full article below for more information.