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The collapses of Yukos, Parmalat, and other international juggernauts have focused scholarly attention on the failure of multinational enterprises. Even what one might consider "American" companies, such as Chicago-based United Airlines, have made clear in their restructuring plans that their operations have profound effects on the dozens of nations around the globe where they transact business. Government and quasi-government reform efforts to regulate these cross-border insolvencies have abounded, including among others, the UNCITRAL Model Law on Cross-Border Insolvency. UNCITRAL is also building on World Bank and INSOL efforts at promulgating a Legislative Guide for "best practices" bankruptcy codes. Scholars vary in their enthusiasm toward these reform efforts, but most will agree that these initiatives should be grounded in a coherent theory of cross-border financial distress. Debate to date in international bankruptcy theory has centered on two competing paradigms, universalism and territorialism. This rich scholarly discussion is replete with complex overlays, such as the proper role of private ordering by parties within either proposal. One of the principal sticking points of this debate, however, has been how best to protect what are often called "local interests." While scholars and courts are not as precise in their use of this term as they might be, they express serious concern over the perils local creditors and small-country sovereigns face in trying to design a viable international bankruptcy system. The purpose of this Article is twofold. First, it explores what exactly we mean in cross-border insolvency law when we talk about "local" creditors and protecting "local interests." Because these local interests are crucial to the debate between universalists and territorialists (with the latter claiming that the former cannot protect these interests sufficiently), rigorous analysis is imperative to permit meaningful critique. Second, this Article advances policy recommendations to address the problems of local interests (as properly understood) and suggests the next stage in designing a theoretically sound but pragmatically functional international bankruptcy system.