All the states in the US are considered sovereign territories which makes it unconstitutional for them to be under federal bankruptcy supervision. But in times like these where many states are facing huge budget deficits, would filing for bankruptcy be the answer? Newt Gingrich thinks so and he is about to propose a new bankruptcy bill to Congress next month.

As sovereigns, all states are expected to balance their budgets at the end of every financial year, with the exception of Vermont. To improve their cash flow, most states issue state bonds. The bond industry is a burgeoning $2.8 trillion business each year. Among the biggest bond issuers are New York, California and Illinois.

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