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Large chapter 11 cases have increasingly become the preferred forum for resolving mass sexual-abuse claims involving youth organizations, religious institutions and nonprofit entities. Through trust-based compensation struc tures, bankruptcy courts use their nationwide juris diction to aggregate debtor assets, channel and rec oncile hundreds or thousands of abuse claims, and distribute recoveries to victims with an efficiency rarely achievable in state court litigation.1 While much improvement is still needed, this system pro vides abuse victims with an avenue to assert claims and receive compensation outside the state court tort system.
Despite the increased use of the chapter 11 process by mass tort defendants, there has been relatively little discussion concerning how the compensation paid to a sexual-abuse victim is treated under the Bankruptcy Code when the abuse victim files an individual chapter 7 case. Given the complex nature of injury claims arising from sexual abuse, the issue of how such compensation is treated in bankruptcy raises significant public-interest considerations involving mental health policy, basic human dignity and bankruptcy law’s foundational “fresh start” objective.
Trustees in individual chapter 7 cases have become increasingly aggressive in arguing that compensation received by a debtor on account of abuse claims is property of the debtor’s estate that should be treated no differently than the debtor’s f inancial assets. These arguments have had varying success in different jurisdictions, resulting in a debt or’s state of residence being the determinative factor for whether a debtor can use abuse compensation to pay for mental health counseling and related ser vices, or whether such funds must be surrendered to a trustee to satisfy debts.
Given the deeply personal and emotional events that give rise to abuse claims, Congress should amend the exemption provisions of the Bankruptcy Code to place abuse compensation beyond the reach of creditors. Such legislation would halt the retraumatizing of sexual-abuse victims who are forced to defend against bank ruptcy trustees’ efforts to reopen years- or decades-old chapter 7 cases to administer and distribute abuse compensation.
Abuse Claims and Compensation as Estate Property
Section 541 (a) (1) of the Bankruptcy Code broadly defines “estate property” to include all legal or equitable interests of the debtor in property as of the commencement of the case. Courts have held that “every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541.”2
Consistent with this definition, a “debtor’s per sonal-injury cause of action is property of the estate if it accrued on or before the filing of the bankruptcy petition, even if the debtor has not yet filed a lawsuit for damages.”3 A debtor has a duty to disclose all interests in property, even if the debtor believes that such assets are worthless or unavailable.4
Failure to schedule an abuse claim can have significant consequences that are not always obvious at the time of a bankruptcy filing. Estate property, including abuse claims, which are disclosed but not administered by a chapter 7 trustee, typically revert to the debtor when the chapter 7 case has been closed.5 By contrast, unscheduled abuse claims remain property of the debtor’s estate even after the bank ruptcy case has been closed, and generally cannot be pursued solely by the debtor.6
In re Gallet involved a chapter 7 debtor who was alleged ly sexually abused beginning in 1996, at age 13, by a member of her youth ministry.7 In 2007, the debtor filed a chapter 7 case listing approximately $16,700 in debt, but not schedul ing the potential abuse claim against her religious organiza tion.8 The “no-asset” case was closed later the same year, and the debtor received a discharge.9
After reading news articles in 2018 about minors who were sexually abused at a nearby parish, the debtor recog nized that the injuries she was suffering were related to her childhood abuse. The debtor commenced a lawsuit in 2020 against her former religious institution on account of the sex ual abuse.10 In 2023, more than 16 years after her chapter 7 case had been closed, the U.S. Trustee moved the bankrupt cy court to reopen the 2007 bankruptcy case and appoint a chapter 7 trustee to investigate and administer the debtor’s sexual-abuse lawsuit.11
Similarly, the debtor in In re Maeder alleged that in 1969 she was sexually abused as a child by a member of her religious institution.12 In 2012, the debtor filed a chap ter 7 case, scheduling unsecured debts of approximately $138,000, but not disclosing the potential sexual-abuse claim. The chapter 7 trustee reported it as a no-asset case, the debtor received a discharge, and the chapter 7 case was closed the same year.13 In 2020, the debtor filed a lawsuit against the religious institution for the injuries that she suf fered from the abuse, and in 2023, the debtor agreed to accept approximately $181,000 as abuse compensation to resolve the lawsuit.14
In 2025, the chapter 7 trustee who had closed the debtor’s bankruptcy case 13 years earlier learned of the abuse compensation offer through ARCHER Systems, a national settlement administration service, and prompt ly notified the U.S. Trustee.15 The U.S. Trustee moved the bankruptcy court to reopen the debtor’s chapter 7 case and appoint the chapter 7 trustee to administer the abuse compensation.16
These cases highlight the following: (1) the harsh con sequences of not scheduling abuse claims, which might not materialize for years or decades; and (2) the tenacity with which certain U.S. Trustees and chapter 7 trustees monitor debtors’ legal proceedings long after their cases have been closed. While not addressed in the aforementioned opin ions, it is fair to question whether such close monitoring of former debtors is influenced in part by the chapter 7 trust ee compensation structure, which calculates compensation based on the amount of debtor assets the trustee distributes to creditors.17
Motions to Reopen the Chapter 7 Cases Denied
The Gallet and Maeder debtors were only excused from surrendering their abuse claims and compensation to the chapter 7 trustee by virtue of the bankruptcy courts exer cising their discretion to deny the respective case-reopening motions. Section 350 (b) of the Bankruptcy Code provides that a court may reopen a case to administer assets, pro vide relief to the debtor, or for other cause.18 “Determining whether to reopen a case for cause under § 350 invokes the exercise of a bankruptcy court’s equitable powers, which is dependent upon the facts and circumstances of each case.”19 A court does not abuse its discretion by denying a motion to reopen if it “would be futile and a waste of judi cial resources.”20
The Gallet court reasoned that reopening the debtor’s case would be warranted if the abuse claim was “a material asset that could be administered.”21 This required the court to determine whether (1) the debtor’s abuse claim accrued under applicable state law prior to the petition date; and (2) if it accrued pre-petition, whether the applicable state law stat ute of limitations barred her subsequently filed lawsuit.22
The court found that because the debtor’s abuse claim involved repressed memories, the “discovery rule” doctrine, contained within the applicable state law statute-of-limita tions rules, informed the court’s holding that the debtor’s abuse claim had not accrued prior to the petition date.23 Accordingly, the abuse claim was not property of the debt or’s estate, therefore “it would be futile to reopen the 2007 bankruptcy case.”24
The Maeder court similarly denied the motion to reopen because at the time the debtor filed her chapter 7 case, any potential abuse claim had been barred by the applicable state law statute of limitations, which left the debtor with only “an interest in a valueless, time-barred claim.”25 It was only due to a change in state law, enacted after the chapter 7 case had been closed, that the debtor had been allowed to file the previously time-barred lawsuit, which resulted in the settlement.26 Finding that the abuse claim had no value as of the chapter 7 petition date, and that the subsequently tendered abuse compensation was not estate property, the court denied the motion to reopen.27
But for the thoughtful analysis of the respective courts in denying the motions to reopen, the debtors in both cases would likely have had their abuse claim and compensation administered by a chapter 7 trustee, with the proceeds dis tributed to creditors. Notably, both debtors appeared pro se in connection with the motions to reopen their chapter 7 cases.28
Blanket Approach to Reopening Chapter 7 Cases
hapter 7 Cases The Roman Catholic Church of the Archdiocese of Santa Fe (ASF) commenced a chapter 11 case in 2018 in the District of New Mexico to address sexual abuse claims.29 During the case, four chapter 7 trustees jointly requested that the ASF bankruptcy court determine the proper “ownership” of abuse claims held by sexual-abuse victims who had pre viously filed an individual chapter 7 case.30
In response, the bankruptcy court entered an order (1) reopening under seal every closed individual bank ruptcy case filed in the District of New Mexico by a debt or who had subsequently filed a proof of claim against ASF; and (2) directing the U.S. Trustee to appoint a chap ter 7 trustee in every reopened case. Notably, the court’s order did not reference § 350 (b) nor discuss the facts and circumstances supporting why each chapter 7 case should be reopened.31
The court subsequently held that each abuse claim asserted by sexual-abuse victims who had (1) commenced a chapter 7 case after the events giving rise to their claim against ASF occurred (referred to as the “tort at issue”); and (2) failed to disclose such “tort at issue” on their bankruptcy schedules was property of the estate in the debtor’s chap ter 7 case. The court further directed the chapter 7 trustee appointed in each reopened case to “expeditiously determine whether any creditors have claims in the case.”32
Due to the sealing of the reopened cases, it is unclear what arguments, if any, were made by the parties concerning how the abuse compensation that the debtor received from ASF should be allocated. However, the bankruptcy court’s 2025 decision in In re Carrillo33 revealed that in one debt or’s reopened 1993 bankruptcy case, the chapter 7 trustee used a portion of the ASF abuse compensation to pay more than $20,000 to a creditor on account of a judgment entered against the debtor in 1993 for legal fees, including payment of accrued interest on the judgment.34
Using Exemptions to Protect Abuse Compensation Awards
Section 522 (b) of the Bankruptcy Code identifies assets that a chapter 7 debtor may exempt from admin istration and distribution to creditors. “The purpose of allowing such exemptions is to help ensure that a debtor that goes through bankruptcy comes out with the adequate possessions to begin his fresh start.”35 Congress has his torically recognized full or partial exemptions, allowing debtors to place such assets as their home, vehicles, work tools, retirement savings, domestic-support payments, Social Security income and disability benefits beyond the reach of creditors.
Debtors have attempted to use § 522 (d) (11) (D) to exempt a portion of their abuse claims or compensation with limited success. The provision exempts payments received by a debt or, up to $31,575,36 “on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss.”37
In In re Keenan,38 the debtor sought to exempt his state court lawsuit against a religious institution relating to allega tions of childhood sexual abuse. The chapter 7 trustee object ed to the claimed exemption, and the debtor responded by submitting a declaration stating that his “abuse included actu al physical abuse of a sexual nature” and that such “physical abuse resulted in both bodily injury to his person, physical manifestations of emotional and psychological stress, and other physical effects.”39
The court held that the debtor failed to make the required showing that his abuse “constituted an ‘injury’ that was ‘bodily’ in nature,” because he presented “no allegation of specific physical violation that would have sundered body tissue, for instance, to match to the essence of a ‘bodily injury.’”40 The court found that the debtor’s “allegations of consequential harm focus entirely on the psychological dimension of his person,” and therefore fell out outside the exemption.41
Requiring a debtor to describe the specific “bodily injury” abuse they suffered in order to exempt abuse compensation is difficult to reconcile with the very nature of sexual abuse. Abuse often inflicts comprehensive injuries, including a physical invasion of the body that trauma research confirms leads to psychological harm with measurable neurological and physiological injury affecting brain function and the ner vous system.42
Conclusion
The exemptions in § 522 (b) reflect longstanding pub lic policy that individual debtors should retain the basic resources necessary to rebuild their lives following bank ruptcy. Exempting abuse compensation is consistent with this policy because these funds are neither fungible wealth nor a substitute for a debtor’s wages.43 Rather, these funds are compensation awarded to address the profound personal injuries suffered by the victim and to assist with rehabilita tion and healing.
Abuse compensation does not belong within bankrupt cy’s distributive framework. Accordingly, Congress should amend § 522 (b) to expressly exempt abuse compensation, whether arising from sexual abuse, sexual assault or sexual exploitation, and whether paid through litigation, settlement or trust distributions.
Footnotes
1 See, e.g., In re BSA, 642 B.R. 504, 534, 564 (Bankr. D. Del. 2022) (82,209 abuse proofs of claim had been filed). The court also found that certain settlements with insurers resulted in “saving years of litigation and expenses and yielding more timely recoveries for [abuse claimants].” Id. at 564.
2 See 11 U.S.C. § 541 (a) (1); In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993).
3 In re Gallet, No. 07-10427, 2023 WL 5663211, at *2 (Bankr. D. Kan. Aug. 30, 2023).
4 See Moreo v. Rossi (In re Moreo), 437 B.R. 40, 65 (E.D.N.Y. 2010).
5 See Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008)
6 Id.
7 Gallet, 2023 WL 5663211, at *1.
8. Id. at *2.
9 Id.
10 See id. at *1.
11 Id.
12 In re Maeder, No. 8-12-73429-ast, 2025 WL 3298322, at *1 (Bankr. E.D.N.Y. Nov. 26, 2025)
13 Id.
14 Id.
15 Id.
16 Id.
17 See 11 U.S.C. § 326 (a).
18 11 U.S.C. § 350 (b).
19 Maeder, 2025 WL 3298322, at *3 (quoting In re Warmbrand, No. 11-70579, 2013 WL 10974204, at *4 (Bankr. E.D.N.Y. Oct. 17, 2013) (internal quotations omitted and emphasis added)).
20 See Gallet, 2023 WL 5663211, at *2.
21 Id. at *3.
22 See id.
23 See id. at *5-6 (court found in dicta that if abuse claim had accrued before petition date, then state court lawsuit would have been barred by applicable state law statute of limitations).
24 Id. at *6.
25 Id. at *4.
26 See id.
27 See id. at *6.
28 See Gallet, 2023 WL 5663211, at *1; Maeder, 2025 WL 3298322, at *1.
29 In re Roman Catholic Church of the Archdiocese of Santa Fe, No. 18-13027 (Bankr. D.N.M. 2018).
30 Chapter 7 Trustee’s Brief on Claims Ownership Issues, Roman Catholic, No. 18-13027 (Bankr. D.N.M. June 7, 2021), ECF No. 711.
31 Order Resulting from Status Conference on Ownership of Claims of Individual Claimants Who Filed Bankruptcy Before This Case was Filed, Roman Catholic, No. 18-13027 (Bankr. D.N.M. Oct. 5, 2021), ECF No. 828.
32 Order on Ownership of Certain Claims, Roman Catholic, No. 18-13027, ¶¶ 1, 5 (Bankr. D.N.M. Dec. 2, 2021), ECF No. 889.
33 672 B.R. 485 (D.N.M. 2025).
34 See id. at 490-91.
35 Marine Midland Bank v. Scarpino (In re Scarpino), 113 F.3d 338, 341 (2d Cir. 1997).
36 This amount is adjusted every three years pursuant to 11 U.S.C. § 104 (a).
37 11 U.S.C. § 522 (d) (11) (D) (emphasis added).
38 443 B.R. 169 (Bankr. D. Minn. 2011).
39 Id. at 171-73.
40 See id. at 174.
41 See id.
42 See Bessel A. Van der Kolk, The Body Keeps the Score: Brain, Mind, and Body in the Healing of Trauma (Viking 2014).
Originally published by American Bankruptcy Institute Journal.
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