Why the Boy Scouts Are Bankrupt and What It Means For Families

The Boy Scouts of America has formally filed for Chapter 11 bankruptcy protection in a Delaware court. The move pauses hundreds of lawsuits from men who say they were sexually abused while Scouts, crimes that in many cases were covered up by the powers-that-be.

And while it doesn’t immediately disrupt scouting activities, which will continue as scheduled for the time being, the filing could mean that your kids might not have the option of joining the Boy Scouts when they come of age. Here’s why.

The aforementioned lawsuits, many made possible by recent changes in states’ statue-of-limitation-laws, have put an untenable strain on the finances of the organization. The crux of this Chapter 11 bankruptcy, sometimes known as a “reorganization” bankruptcy, is a Victim’s Compensation Trust. The BSA hopes the trust is enough to satisfy the alleged victims and the court-appointed trustee.

Michael Pfau, a lawyer who’s represented hundreds of plaintiffs in lawsuits against the Scouts in 34 states, told the New York Daily News that the goal of the proposed trust is for the Scouts to “emerge with the settlement of all claims and then release from the claimants, which means, in exchange for some compensation, the claimants will not sue the Boy Scouts in the future.”

If their plan is rejected, the continued existence of the Scouts is in danger. The trustee could convert the case to a Chapter 7, or “liquidation” bankruptcy, which requires the sale of debtor (BSA) assets and distribution of the proceeds to its creditors (victims who are owed damages).

A collapse of the proposed plan might also pave the way for legal actions against the 272 local Scout councils that could wipe them out, as past lawsuits have resulted in tens of millions of dollars in damages per victim.

BSA’s press release announcing the filing went to great lengths to specify that those local councils are “legally separate and distinct organizations” that are not filing for bankruptcy. In aggregate, the local councils have more than twice as many assets ($3.3 billion, according to the Wall Street Journal) as the national organization, which has more than $1.4 billion.

It’s understandable why the national organization would take the hit to protect these local councils; the Catholic Church pursued a similar strategy to protect diocese when dealing with its own child sex abuse scandal.

But Pfau seems skeptical that justice can be done without the local councils facing consequences. The “local councils are really the eyes and ears of the Boy Scouts,” he said. “The local councils not only hold enormous assets, they are responsible in many cases for the abuse.”

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