The leaders of Puerto Rico could soon have to choose between cutting essential services like the police, hospitals and education, and paying bondholders. To avoid this catastrophe, Congress needs to help the island, which is home to 3.5 million American citizens, by giving it the ability to restructure its debts in an orderly way.

On Jan. 4, the island’s government has to pay creditors nearly $1 billion, money it does not have. It will almost surely default on some of that debt, which could result in lawsuits by investors. The commonwealth is already behind in paying vendors about $400 million and owes residents $300 million in tax refunds. Officials have raised taxes and slashed spending, but that has only depressed the weak economy and encouraged thousands of people to move to the mainland. Puerto Rico’s government and its public corporations have a debt of $72 billion, and public pension funds are so underfunded that they need an infusion of about $44 billion. (On Wednesday, a public utility reached a deal with creditors to restructure its debt, but that agreement covers only a small fraction of the island’s debt.)

What needs to happen is clear: Congress should change the law that excludes Puerto Rico from bankruptcy protection. The island’s government and its creditors should be able to renegotiate the debt in court. And federal lawmakers should appoint an oversight board to make sure the commonwealth’s government adopts sound policies. Similar approaches have helped the District of Columbia and New York City resolve financial problems.

Unfortunately, Congress failed to move on restructuring legislation before members left Washington for the holidays. Wall Street investors that own bonds issued by the island mounted an aggressive lobbying effort, aimed primarily at Republicans, to stall legislation. They have argued that bankruptcy protection would amount to a bailout. That is nonsense. The island’s financial problems are severe, and bankruptcy, which will not cost the federal government any money, is the only viable option.