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A state can simple be defined as an organized political community living under a single system of government, while a municipal area is a town or city or its local government. A state/municipality can be said to be bankrupt when the available revenue can no longer meet the expenses of the state or municipal area. Unlike the natural person who is subject to bankruptcy proceedings, a state/municipality cannot be declared bankrupt under Nigerian law. The basic law regulating bankruptcy in Nigeria is the Bankruptcy Act Cap B2 LFN 2004. A person, organization or state who can no longer meet his financial obligations would naturally need to be bailed out of his financial distress. No wonder recently, some states in Nigeria were financially bailed out of their financial distress by the Federal Government. However, the question on the minds of most Nigerians especially those in the legal profession is as to whether the financial bailout granted to states by the Federal Government has a legal backing. This study explores the entire gamut of state/municipal bankruptcies in Nigeria, and critically examines the legality of financial bailout granted to states/municipalities in Nigeria. It also exposes and punctures the lacuna discoverable in the Bankruptcy Act and other laws as they relate to state/municipal bankruptcy in Nigeria. It further reviews the relevant bankruptcy and insolvency laws and practices in western jurisdiction particularly in America and Europe, in order to draw lessons from there in advocating for a reform of the Bankruptcy Act and other legal instruments in Nigeria on state/municipal bankruptcy or insolvency. To achieve this, there was reliance on text books, articles by eminent writers, seminars, workshop papers and other media sources including the internet, government policy papers and several write ups on state/municipal bankruptcies in Nigeria.
Keywords: Bankruptcy, Financial Bailout, Legality, Nigeria