Find the best financial services for you at: SMARTFINANCESOLUTIONS.NET - Why does the federal govt. have to legislate to allow states to declare bankruptcy? - The Constitution identifies states as sovereign, so a federal bankruptcy court cannot compel them to do anything. There is discussion now about somehow allowing states to declare bankruptcy, but this Constitutional impediment is fundamental. But the question arises, if the states are sovereign, why can they not simply nullify any obligations they have within their own legislatures? -