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Sexual abuse lawsuits force organizations to look at bankruptcy

Many factors can force a business to consider bankruptcy, ranging from management errors to unexpected loss of customers to natural disasters. Another kind of threat to an organization's financial well-being has forced several organizations to consider file a Chapter 11 petition: lawsuits from victims of alleged sexual abuse. One of the nation's most iconic organizations, the Boy Scouts of America, an organization with many connections in Rockland County, is apparently seeking advice about bankruptcy in response to a number of lawsuits alleging that young boys were abused by BSA employees or volunteers.

The Wall Street Journal recently reported that the Boy Scouts has hired a law firm to provide advice about a possible Chapter 11 filing. Executives of the organization have denied that bankruptcy is on the horizon, but they have also acknowledged that they are exploring "all options available." The plight of the organization is also worsened by declining membership. In its peak years, the BSA counted 4 million members; its current membership is down to 2.3 million.

Another organization that is not as well-known as the Boy Scouts, USA Gymnastics, filed a Chapter 11 petition to protect itself from dozens of lawsuits triggered by abuse allegations against its now-imprisoned doctor, Larry Nassar. Several Roman Catholic dioceses across the country have also sought the protection of Chapter 11.

The automatic stay that is triggered by filing a Chapter 11 petition brings all such lawsuits to a halt and gives the debtor organizations an opportunity to attempt to settle the lawsuits or to build their defenses. Any business that foresees the possibility of being hit with several lawsuits at once may want to get more information about the various protections provided by filing a Chapter 11 petition.

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