Feb 20, 2020 - Economy

Why the Boy Scouts of America filed for bankruptcy

Lawyer pointing to lawsuit

Victims' rights Attorney Jeff Anderson speaks to media during a press conference on April 23, 2019. Photo: Eduardo Munoz Alvarez/AFP via Getty Images

The Boy Scouts of America filed for bankruptcy protection this week with the sole purpose of relieving the legal pressure it faces from sexual abuse victims.

Why it matters: Bankruptcy means that a judge will put a ceiling on how much BSA will pay to victims. The proceedings could limit the degree to which local councils' billions of dollars' worth of assets can be awarded to victims.

Context: The 100-year old organization is facing 275 lawsuits, and expects thousands more claims to be filed.

  • Thanks to new state laws, sexual abuse victims can bring cases to court regardless of when the misconduct occurred.

How it works: Organizations can turn to bankruptcy courts when facing a monsoon of lawsuits from corporate wrongdoings. Examples include...

  • USA Gymnastics, which faces fallout from multiple cases of sexual abuse by former team doctor Larry Nassar.
  • Catholic Church dioceses, including one in Harrisburg, Pennsylvania, which filed for bankruptcy Wednesday.
  • PG&E, the California energy utility facing claims from victims of wildfires sparked by its equipment.

By the numbers: BSA is solvent.

  • The organization has $1 billion of assets, against $294 million in liabilities.
  • If you include assets owned by local councils and related nonprofits, it has way more. The local councils have $3.3 billion in assets, per the Wall Street Journal.
  • BSA has tried to separate itself from the 261 local groups. In the bankruptcy filing, it says the councils are financially independent and separate entities. That could protect the councils from having to pay into a compensation fund while also putting billions of dollars out of the reach of victims.

The bottom line: One lawyer told the New York Times this strategy is similar to the Catholic Church, whose dioceses — not parishes — filed for bankruptcy protection in an attempt to protect parishes' assets. (It sometimes worked.)

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