Water scarcity due to climate change is forcing the state and local government agencies that regulate water use to prioritize certain water uses and users above others. Water agencies could just stand pat and enforce existing priorities, even if doing so would cut off valuable collective uses of water that are lower in priority than uses by narrow private interests. Alternatively, the agencies could try to adapt water priorities to climate change by reducing water obligations owed to certain groups of users in order to free up water supplies for other groups of users, even if doing so would trigger a mass of litigation from users set to receive less water than they were promised. Anticipating these dynamics, water law scholars developed the concept of “water bankruptcy,” a set of principles for better resolving the multiparty lawsuits bound to follow adaptation of water priorities to climate change. To date, however, proponents of water bankruptcy in principle have urged lawmakers to amend their own state and local procedures, overlooking the possibility that water bankruptcy in practice is already available to water agencies through the federal law of municipal bankruptcy, Chapter 9 of the Federal Bankruptcy Code.

This Article is the first attempt to examine the promise of water bankruptcy through Chapter 9 of the Bankruptcy Code, which allows local government units to readjust their debt obligations into more sustainable arrangements. As it turns out, the Code makes available a litigation process that is readymade for water bankruptcy, maximizing flexibility for eligible water agencies to consolidate in a single forum all claims to specific water sources, to breach and compensate obligations owed to large groups of water users, and even to pay for emergency water supplies. Water bankruptcy through the Bankruptcy Code also would not implicate the efficacy or constitutional concerns raised by recent Chapter 9 bankruptcies of general municipalities. Faced with dwindling freshwater supplies, water agencies and advocates of water bankruptcy in principle should appreciate the promise of water bankruptcy through the Bankruptcy Code.