I THINK THAT STATES THAT GO BANKRUPT SHOULD REVERT TO TERRITORY STATUS FOR FIVE YEARS: Bankruptcy for States? It’s a Better Idea than You Think. With existing elected officials ineligible to serve in any capacity, or draw a state pension, during that time.

UPDATE: Michael Lotus writes:

Don’t do it on a fixed time. Make them reapply for statehood.

Also, critically, they lose Congressional representation during territorial status, which means that they would not be voting on any assistance, and would not be voting on readmission.

Bankruptcy for states is so obviously a good idea that is too bad it has not come up sooner. A default without any workout system would be a mess. Having the option of an orderly workout would give relief to all creditors. And it would give state governments a huge element of bargaining leverage in negotiations. Almost as importantly, subordinate units of government should be able to file for bankruptcy much more easily than they do currently, with states setting the rules. A uniform national system making municipal and county bankruptcy easy would also impose discipline which is absent now on local retirement obligations.

They shouldn’t get any presidential electors either, of course.