The "Government Bailout Prevention Act" seeks to prevent the federal government from providing financial assistance to state and local governments and school districts that are in financial distress. Specifically, it prohibits the use of federal funds to purchase or guarantee obligations, issue lines of credit, or provide direct or indirect grants-in-aid to entities that have filed for bankruptcy, defaulted, or are at risk of defaulting on or after January 1, 2026. This measure aims to ensure that federal resources are not used to bail out financially mismanaged sub-national entities. Furthermore, the bill explicitly bars the Secretary of the Treasury from using general fund revenues or borrowed funds to assist such distressed entities, and it prevents Federal Reserve banks from providing any financial instruments, including purchasing bonds, to these governments or school districts. An important exception is made for federal assistance provided in response to a declared disaster . The prohibition also clarifies that it includes debt restructuring activities but does not apply to general discretionary appropriations, direct spending, or routine federal grants awarded for programmatic purposes, distinguishing these from bailout-specific aid.