Sait Serkan Gurbuz, AP
FILE — In this Dec. 16, 2015, file photo, Puerto Rico Gov. Alejandro Javier Garcia Padilla speaks at a luncheon at the National Press Club in Washington. Garcia said on Sunday, May 1, 2016, that negotiators for the U.S. territory’s government have failed to reach a last-minute deal to avoid a third default and that he has issued an executive order to withhold payment.

Puerto Rico is bankrupt, and if you think that is hyperbole, just look up the definition of bankrupt in Webster’s dictionary. I will save you the trouble; here it is: “bankrupt: a person, business, etc., that is unable to pay its debts.” On Monday, Puerto Rico defaulted on a $400 million debt repayment, and its governor, Alejandro Garcia Padilla, has said that there are more defaults to come. Puerto Rico, an island with just 3.5 million people, has racked up debts of $115 billion ($71 billion in bond debt and another $44 billion in pension debt) over the past couple of decades. That equates to a per person debt burden of nearly $33,000 for every man, woman and child on the island where the median family income is $19,000 per year.

Puerto Rico has at least a $2 billion budget deficit this year that it cannot close. It has, among other things, shuttered over 200 schools, stopped paying special education teachers and prison vendors, rationed certain medicines and cut payments to its only children’s hospital. Its leaders, public employees and creditors, combined with a 10-year-long recession, have put the island in an impossible financial situation. Finally, despite significant pension cuts for current workers, Puerto Rico’s pension fund will be completely liquidated by 2019, with no assets on hand to pay the retirement benefits for 330,000 workers and retirees who are practically penniless.

As you would expect, Puerto Ricans with options are fleeing the island. Last year alone, nearly 84,000 Puerto Rican citizens bailed out, taking one-way flights out of the country, including more than 17,000 with post-high-school degrees. Of those that remain, 45 percent live below the poverty level with poor economic prospects. Puerto Rico is dead broke; there is no way around it.

With their backs against the wall, it is not surprising that Governor Padilla, with the support of the Puerto Rican legislature, has chosen to prioritize funding basic government services and pensioners over repaying its debts to its bondholders. Naturally, the bondholders, many of whom have security interests in specific tax revenue streams, feel like the legal ground is shifting under their feet and that their investors are being robbed. This will all result in a tremendously bitter war over how to restructure and write-down Puerto Rico’s debt so that it can remain a going concern. It is in nobody’s interests to see a complete breakdown of the social compact in Puerto Rico. Every stakeholder must come to the table to figure out a pathway forward.

The real debate is, how should the painful restructuring process proceed? How this question is answered will have profound implications for our country. Out of the gates, I am pleased to see that Congress has absolutely no appetite to bail Puerto Rico out of this situation. A bailout would be the worst possible policy outcome. Transferring Puerto Rico’s liabilities to the federal balance sheet would only exacerbate our federal debt crisis while encouraging more profligate borrowing, lending and can-kicking at the state and local level. Believe me, several states with seemingly intractable debt problems would LOVE such an option; just ask former Illinois Gov. Pat Quinn.

In the coming years, as debt continues to compound, as politicians, unions and lenders dither, and as taxpayers flee to greener pastures, more bankruptcies will follow Puerto Rico’s. I expect a state or two will end up in a similar situation (New Jersey, Illinois and Kentucky are all candidates). The Puerto Rico bankruptcy will set a precedent. We can’t afford mistakes; we have to get it right. More to come on this.

Dan Liljenquist is a former Republican state senator from Utah and former U.S. Senate candidate. He is nationally recognized for work on entitlement reform.