Bankruptcy Code and Automatic Stay Apply to Federally Recognized Indian Tribes

A recent U.S. Supreme Court case considered whether a federally recognized Indian tribe is subject to the U.S. Bankruptcy Code’s provisions and, more specifically, the automatic stay that applies when a debtor files for bankruptcy protection. While there are no longer any federally recognized Indian tribes centered within the state of Illinois, the State of Illinois emphasizes that “the lands we now call Illinois are the ancestral homelands of many Tribal Nations,” and “Native peoples from over 100 Tribal Nations continue to call these lands home.” Accordingly, federally recognized Indian tribes may have businesses in Illinois or may be doing business with consumers in various capacities. The recently decided case, Lac du Flambeau Band of Lake Superior Chippewa Indians et al. v. Coughlin (2023), required the Court to consider whether a federally recognized Indian tribe is subject to the automatic stay and to the provisions of the Bankruptcy Code more broadly.

The Court held, “The Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes.” Our Oak Park bankruptcy attorneys can discuss the reasoning of the case in more detail, as well as its implications for debtors who file for bankruptcy.

Getting the Facts About the Case

In Coughlin, the debtor borrowed $1,100 in a high-interest, short-term loan from a business called Lendgreen. That business is owned by a federally recognized Indian tribe, the Lac du Flambeau Bank of Lake Superior Chippewa Indians. The debtor did not fully repay that loan and later filed for Chapter 13 bankruptcy. Despite being “reminded of the pending bankruptcy petition,” Lendgreen violated the automatic stay and “continued its efforts to collect on [the] debt,” according to the Court.

The federally recognized tribe argued that it had sovereign immunity and was not subject to the automatic stay, but the debtor argued that the tribe was a “governmental unit” subject to the Bankruptcy Code and to the automatic stay. The Court ultimately agreed with the debtor, and it clarified that federally recognized Indian tribes are “governmental units” and are subject to the automatic stay in a bankruptcy case.

Understanding the Implications for Future Bankruptcy Cases

The recent case clarifies that Indian tribes, and their businesses, cannot violate the automatic stay. In other words, When a debtor files for bankruptcy, the protections of the automatic stay prevent all creditors or debt collectors from taking initial or continuing action against the debtor, including those creditors or collectors connected to businesses owned by federally recognized Indian tribes.

The case also suggests that the term “governmental unit” is broad, and it is unlikely that any business that might be defined as a governmental unit could claim sovereign immunity in order to violate the automatic stay or another provision of the Bankruptcy Code. Any debtor who has filed for bankruptcy and is continuing to receive phone calls, emails, or other forms of communication from a creditor or debt collector or who has received notice of additional action taken to collect on a debt, should get in touch with an attorney who can help.

Contact an Oak Park Bankruptcy Lawyer

Do you have questions about the implications of the recent Supreme Court case, or do you have questions or concerns about how the automatic stay works? One of the experienced Oak Park bankruptcy lawyers at our firm is here to help you. Contact the Emerson Law Firm today for more information.




See Related Blog Posts:

Common Bankruptcy Exemptions to Know About

How Does a Homestead Exemption Work?

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