“Chapter 9 is an option that all states have at their disposal for their municipalities and public corporations and there is no reason why Puerto Rico, its creditors and its citizens should not be afforded the same protections”. Marco Rubio and Texas Sen. The bill would be a companion to House legislation sponsored by Puerto Rico’s nonvoting member of Congress, Pedro Pierluisi, and backed by Rep. Nancy Pelosi, the House Democratic leader. The largest public corporation, power utility PREPA, has around $9 billion in debt and is now negotiating a restructuring with its creditors.

Hampton said the GDB had indicated that a supplemental request has been made to the legislature to provide an appropriation for the August 1 payment, “which could avert an actual default on the debt service payment”.

Puerto Rico’s crisis can be traced back to when Congress granted corporate tax breaks for setting up shop in Puerto Rico and made the island’s municipal bonds “triple tax-exempt”, which exempted bondholders from paying federal, state or local taxes on them.

“The Puerto Rican people – over 3.5 million US citizens – have persevered through a deep recession, and they should not be left to manage their financial challenges in an untested and potentially disruptive process”, the Treasury said.

“Failure to pay that debt without an orderly workout would in effect begin a cascading series of chaos, and litigation would ensue all around the US, maybe around the world, in courts throughout the states here on the mainland, as well as in Puerto Rico”, Blumenthal warned. However, Republicans are still concerned that allowing Puerto Rico to file for bankruptcy would be a bailout and that federal money would be involved.

This story has been updated with comment from the Treasury Department.

Absent such legislation, the island’s unresolved debt “could lead to a humanitarian crisis” that might include the closing of schools, Schumer said. In June 2015, Puerto Rico Governor Alejandro Garcia Padilla said the island can not repay the outstanding billions of debt.

Its economy has struggled to grow since 2006, and the island’s 12.4 percent unemployment rate is more than double the USA average.

Hedge fund companies have been among the major investors and some have been opposing attempts to provide Puerto Rico the Ch. 9 remedy that might allow it to put off some of its debt payments. He directed island officials to craft a debt-restructuring plan by August 30.

“We continue to have strong conviction that the Chapter 9 measure will not garner any material momentum in either chamber despite Puerto Rico’s increased lobbying efforts”, the analysts said.

Pressed on whether the House will take action, Labrador responded, “What’s Puerto Rico going to do about making sure they have a path forward so it doesn’t happen again?”

He met Tuesday with lawmakers in both parties to discuss the bankruptcy bill.

Information for this article was contributed by Michelle Kaske of Bloomberg News and by staff members of The Associated Press.