Bankruptcy System Needs Overhaul to Protect Sexual Abuse Victims

The bankruptcy system was never designed to manage sexual abuse claims. US bankruptcy law has long been understood as a response to economic distress rather than mass torts.

Built in the 1970s to address debt problems, Chapter 11 doesn’t reflect what we now know about trauma or how institutions mishandled sexual abuse cases for decades. Yet youth organizations, churches, schools, and nonprofits progressively use Chapter 11 bankruptcy to resolve thousands of revived or long buried claims.

Survivors can face unparalleled barriers. Trauma often delays disclosure for many years, but bankruptcy deadlines have peculiarly short bar dates ignore that reality. Repeating depositions and aggressive discovery can compound harm, yet few trauma-informed protections exist.

Meanwhile, institutions and insurers have better advantages: deep resources, control of information, and important influence over negotiations. Survivors, scattered across the country and often unrepresented at the outset, struggle to participate in equivalent footing.

Third-party releases also can shield affiliated organizations from survivors’ lawsuits. After the Supreme Court’s 2024 ruling in Harrington v. Purdue Pharma L.P., and their use in sexual abuse cases raises good fairness concerns. Bankruptcy practice is also incompatible. Each sexual abuse case has different deadlines, rules, and settlement structures, creating uneven protections depending on where a case is filed.

Without reform, bankruptcy can hide misconduct, limit access to insurance information, and pressure survivors into nimble settlements.

Needed Changes

Reform would bring the system in line with trauma science, basic fairness, and what survivors deserve from a process meant to deliver justice. They include:

More time to file claims. Short deadlines for filing claims, or bar dates, cut off valid claims because they don’t reflect how trauma works. Survivors can delay disclosure for years or decades.

Many states—including Arkansas, New York, and Maryland—now allow long “revival windows,” but bankruptcy bar dates may be much shorter. That means survivors who could sue outside bankruptcy lose their rights merely because the debtor filed Chapter 11.

Longer bar dates lead to more accurate filings, reducing challenges based on incomplete paperwork. Longer deadlines prevent bankruptcy from becoming a liability reduction strategy at survivors’ expense.

Trauma-informed discovery and testimony. Survivors often experience secondary victimization, or re-traumatization, after engaging with legal, medical, or mental health systems. Yet current bankruptcy procedures offer few safeguards from duplicative examinations or aggressive questioning that mirrors prior harm.

Reforms should include:

• Limiting continual or excess examinations
• Establishing trauma informed deposition standards
• Appointing a neutral discovery ombudsman to ensure fairness

These changes would keep questioning deferential and appropriate, provide oversight to halt harassing tactics, and help prevent survivors from being overwhelmed or harmed.

Limits on third-party releases. These can block survivors from suing related organizations, even if they enabled or covered up abuse. In Purdue Pharma, the justices said nonconsensual releases lack clear statutory authority outside the asbestos context. The use of broad releases in sexual abuse cases raises fairness issues.

Congress could reform this by prohibiting nonconsensual third-party releases in sexual abuse bankruptcies—requiring clear, informed, written survivor consent—and demanding meaningful financial contributions from entities seeking protection.

Courts should confirm that survivors understood what they were giving up and that the deal aligns with public policy. These changes would ensure releases are voluntary, justified, and not just a shortcut to shield institutions.

Use of a survivor advocate. Survivors often enter bankruptcy cases unrepresented and unknowledgeable about bankruptcy law. A survivor advocate, such as a consumer privacy ombudsman, would give survivors a devoted voice in the process by:

• Ensuring notices and procedures are trauma informed and easy to understand
• Flagging practices that could retraumatize survivors
• Monitoring negotiations for cleanness
• Objecting to coercive tactics or unreasonable deadlines
• Improving outreach to survivor communities

This role would counterbalance institutional power, promote transparency, and help courts understand trauma and its impact on participation.

Use of examiners. Sex abuse bankruptcies may involve allegations of cover ups, destroyed records, and decades of misconduct. Compulsory examiners would bring transparency and accountability. An examiner can:

• Conduct an independent investigation into what the institution knew and when
• Uncover patterns of abuse or concealment
• Compel disclosure of documents and insurance information
• Issue reports that help shape settlements

This prevents institutions from controlling the narrative and ensures survivors and courts have dependable facts before approving any plan. Better information leads to better claim valuations, fairer insurance contributions, and fairer distributions.

More importantly, it builds survivor trust in the bankruptcy system. Congress should require an examiner in cases involving further than a specific number of survivors or credulous allegations of concealment.

Improved insurance transparency. Compulsory disclosure of insurance information in sexual abuse Chapter 11 cases would be highly beneficial to survivors. Transparency about insurance assets is essential to fair and effective resolution. Insurance often determines the total compensation accessible and is a principal source of recovery.

Survivors can’t meaningfully evaluate plan proposals, vote intelligently, or negotiate unless they know:

• How much insurance exists
• How much has already been used (“erosion”)
• What exclusions or coverage defenses insurers may raise
• Whether insurers plan to deny coverage entirely

Without this information, the core economics of the case remain opaque. Early, thorough disclosure would speed negotiations, reduce valuation disputes, and prevent late-stage surprises.

Full and prompt disclosure ensures that negotiators have real numbers. Withholding this information strengthens the insurance company’s leverage. Delayed disclosure allows insurers to:

• Slow negotiations
• Push for infernal settlements
• Create uncertainty about coverage
• Argue for abbreviated bar dates or discount rates

Claim supposed “coverage defenses” late in the case. Additionally, a modern subchapter—such as Subchapter V for small businesses—could standardize claims procedures, bar date protection, examiner requirements, restrictions on third party releases, and trauma informed practices. A devoted subchapter would bring uniformity, reduce litigation, and ensure equivalent treatment across cases.

The bankruptcy process remains misaligned with the realities of trauma and institutional misconduct. The reforms outlined above would strengthen the integrity of Chapter 11 while providing survivors with the justice and dignity they deserve.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Kenneth Rosen practices debtor and creditors’ rights law and advises companies on practical strategies for resolution of financial distress.

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