Bankruptcy cases can be complex and challenging for both debtors and creditors. However, a recent Supreme Court ruling has shed light on an important aspect of consumer bankruptcy: the ability of consumer debtors to sue tribes for violating the automatic stay. In this blog post, we will explore the implications of the Lac du Flambeau Band of Lake Superior Chippewa Indians, et al. v. Coughlin case and discuss the specific requirements tribes must adhere to under the Bankruptcy Code.
Background of the case
On June 15, 2023, the U.S. Supreme Court delivered its decision in the case involving Lendgreen, a tribal entity that had provided a high-interest, short-term (aka a cash advance or ‘payday’) loan to an individual named Brian Coughlin. Coughlin subsequently filed for bankruptcy under Chapter 13. Lendgreen, believing it was exempt from certain provisions of the Bankruptcy Code, including the automatic-stay provisions, continued its debt collection efforts despite the ongoing bankruptcy proceedings. In response, Coughlin filed a motion to enforce the automatic stay against Lendgreen, its parent corporations, and the tribe.
The Supreme Court’s ruling on tribal sovereign immunity
The Supreme Court’s ruling in Lac du Flambeau clarified that tribal sovereign immunity does not shield tribes from specific requirements of the Bankruptcy Code, as outlined in 11 U.S.C. § 106(a). The Court determined that the definition of “governmental unit” within Section 106(a) includes tribal governments, effectively abrogating their sovereign immunity for the enumerated provisions of the Bankruptcy Code. This decision resolved a circuit court split that had persisted since 2019.
Bankruptcy Code provisions affected by the ruling
The Lac du Flambeau ruling has significant implications for various provisions of the Bankruptcy Code. It’s essential for tribes and tribal entities to familiarize themselves with these provisions and seek legal advice when necessary. Here are some key provisions affected by the ruling:
- Sections 362, 524, and 1141: These sections establish the automatic stay, discharge, and plan injunctions, providing debtors with protection during bankruptcy proceedings. Violations of these provisions, including attempts to collect prepetition debts, can result in sanctions and punitive damages.
- Sections 542 and 543: These provisions address turnover actions, requiring entities in possession of the debtor’s property to return it to the debtor or trustee upon request.
- Sections 546, 547, 548, 549, 550, 551, and 749: These provisions enable debtors or trustees to initiate avoidance actions to invalidate pre-bankruptcy transactions.
- Section 363: This provision allows debtors in possession to sell their assets “free and clear” of liens, claims, and encumbrances.
- Sections 105 and 524: Under certain circumstances, Chapter 11 plans may include nonconsensual third-party releases, releasing nondebtor parties from liability without the consent of all potential claimholders.
What the ruling means for consumer debtors
The Supreme Court’s decision in Lac du Flambeau Band of Lake Superior Chippewa Indians, et al. v. Coughlin has clarified that tribes are subject to certain provisions of the Bankruptcy Code. The bottom line is that while in the past, where tribe ownership has been used as a shield to prevent debtors from clawing back funds in excess of $600 taken during or within 90 days of filing bankruptcy, if you file bankruptcy you are protected and can get your money back and prevent further collections actions. If this has happened to you, contact me at 248.719.5663 immediately so I can help you!
