This article examines the issue of state bankruptcy. Since there is no uniform way to deal with the issue, attention is given to different practices and guidelines of courts’ reasoning(s) on the matter. In order to answer the question of legality, as well as to confirm or disconfirm the hypothesis that sovereign state can declare bankruptcy, descriptive, analytical and comparative methods are used. The article provides a historical overview of state bankruptcies. The article also explores the existing judicial regulations, addresses the absence of international law containing a uniform or a codified bankruptcy law for states, and outlines the main principles applicable to the dispute resolution between an insolvent sovereign state and its creditors. In addition, the article analyzes the circumstances which allow states to suspend or repudiate the fulfilment of international obligations.