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A Quick Guide to Puerto Rico’s Bankruptcy

Puerto Rico became a United States territory in 1898.  The islands economy relied mostly on agriculture.  However, after World War II, the United States tried to modernize the territory by moving businesses there.  Of course, these businesses moved to take advantage of the lenient tax laws and cheap labor ultimately not improving the Puerto Rico in the long run.

The Economic Rise and Decline

In the 1970’s the federal government passed a tax law with a large loop hole that allowed huge businesses to operate in Puerto Rico while paying almost no taxes.  This was great for the citizens of the territory, but it created an enormous tax deficit for the U.S. government.  In 2006, the law was completely repealed and most of the businesses operating in Puerto Rico left leaving thousands of people jobless and debt on the rise.

Underground Jobs

It is estimated that one-third of the Puerto Rican job force operates “under the table” which is to say that the income on these wages is not traceable and therefore not taxable.  This lack of infrastructure leads to a tax deficit for the territory.

How Does All of This Lead to Bankruptcy?

Due to the lack of tax revenue, the Puerto Rican government cannot sustain itself.  Unable to collect taxes from its citizens, the government sold $61 billion in bonds to some of the largest firms on Wall Street.  That total is now up to $70 billion.  I addition to the debt associated with bonds, Puerto Rico owes its government employees over $43 billion in pension payments.  That puts Puerto Rico over $120 billion in the red.  Just to offer some context, when Detroit, Michigan filed for bankruptcy in 2013, it (only) owed about $14 billion.

While the magnitude of the debt is far different than a person or small business may experience, the solution for this type of bankruptcy is similar.  Currently, the United States government is working with leadership in Puerto Rico to put together a bankruptcy plan that their creditors and the court can agree to.

You may not be $120 billion in debt, but maybe you are behind on loan payments and getting harassed by debt collectors.  If you want the phone calls and direct mail to stop, talk to Elias Dsouza and Dsouza and Strachan Lawgroup Group today.

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