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USA Gymnastics Files Bankruptcy in Response to Larry Nassar Lawsuits

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By Christopher Coble, Esq. on December 07, 2018 1:46 PM

Former sports physician Larry Nassar has been sentenced to hundreds of years in prison after pleading guilty to sexually assaulting patients and minors in his care. Many of those victims were members of Michigan State's and the United States national gymnastics teams. USA Gymnastics has even been accused of paying settlements to Nassar's victims to keep them quiet while he continued to molest team members and other patients.

This week, USA Gymnastics filed for Chapter 11 bankruptcy, in part, it claims, as an effort to "expedite resolution of claims" filed against the entity by survivors of Nassar's sexual abuse. Does this mean the sport's governing body doesn't have the money to compensate its victimized athletes?

Delays and Debtors

According to attorney Michelle Simpson Tuegel (who represents Kennedy Baker and Alyssa Baumann in their lawsuits against the sport's governing body), the bankruptcy filing "creates a delay" in court proceedings, but she expects her clients will still get settlements from USA Gymnastics' insurance policies.

Sports Illustrated legal analyst Michael McCann agreed with the first part: "Indeed, under bankruptcy law, creditor actions against a so-called 'chapter 11 debtor' are automatically stayed (postponed) upon the filing of the bankruptcy petition," McCann writes. "They typically remain stayed for the duration of the bankruptcy process." And while USAG's insurance coverage could provide "significant coverage for the amounts asserted in the various lawsuits," the entity concedes the insurance policy would likely be "insufficient" to cover the potential total amount owed.

Creditors and Compensation

According to McCann, USAG estimates it may be liable for between $75 million and $150 million to Nassar's victims, while the non-profit's assets total just $6.5 million. But the type of bankruptcy filing may be good news for those victims. Had USA Gymnastics filed for Chapter 7 bankruptcy, those paltry assets would've been sold off to compensate the entity's current creditors, leaving perhaps nothing for those abused by Nassar.

Chapter 11, on the other hand, "gives USAG an opportunity to remain in business and, conceivably, rebuild itself into an entity with more resources that could be used to pay victims," writes McCann. "At least in theory, then, the amount of money ultimately paid to survivors could increase through the bankruptcy process."

That process, however, will not get resolved overnight. And Nassar's hundreds of victims may have to wait even longer for justice.

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