That is exactly what needs to happen to California, and the sooner the better (and the cheaper for the rest of us). I believe that what would happen in the event of bankruptcy (or imminent bankruptcy) is similar to what happened with places like New York City and Philadelphia. It is called a "bailout" and it comes with an "oversight committee".
The "oversight committee" essentially then does what the legislature does not have the ability to do - - control spending. The committee takes over the purse strings while the Democrat legislature does things like allow 12-year-olds to get abortions without parental notification, etc.