This article appeared in the NY Times on Jan 20th. It is reported that some states are in such dire straights they have approached Congress to determine if and how they could declare bankruptcy. What this means is that if this is allowed those states that go through with bankruptcy would alleviate their responsibility to pay retiree pension and health care benefits.
States are not allowed to appeal to the Federal Government for relief in bankruptcy since all states are "sovereign". The Constitution will be tested once again. If states are not allowed to declare bankruptcy then you know they will be asking for additional handouts from the Feds to bail them out once again. If this happens we will see a real political uprising not to mention that the deficit will continue to climb out of sight.
go here for the article.