The Great Recession and its aftermath resurrected concerns that state and local governments would begin to default on their obligations. Many feared that the long and successful history of state and local borrowing in the capital markets was destined to end. As spending needs swamped resources, finding easier ways out of public debt than repaying it as promised might become politically fashionable. This article explains and evaluates the various mechanisms that might deal with municipal and state defaults and insolvencies in the United States. It first explores the historical underpinnings of restructuring municipal debt, providing examples of successes and failures of such efforts in the United States. The era of the Great Depression of the 1930s and its precursors is examined, as is the existing statutory framework for municipal bankruptcy in the United States. Sovereign debt by states and its resolution is also discussed.