USA Gymnastics’ recent bankruptcy filing put an immediate stop to litigation brought by sexual-abuse victims of Larry Nassar, frustrating some who hoped those lawsuits would provide answers, accountability and closure.
But bankruptcy could, in the long run, make it easier for victims to receive compensation. Legal experts say the process opens the door for more people to file claims, amplifying victims’ voices and giving them more leverage to demand funds.
The embattled sports governing body filed for chapter 11 bankruptcy in Indianapolis on Wednesday, as it faced law-enforcement investigations and lawsuits filed by more than 300 women and girls, including former Olympic gymnasts. They said the organization failed to protect them from Nassar, the U.S. national team’s longtime doctor.
Kathryn Carson, the organization’s newly elected board chairwoman, said in a public email Wednesday that the filing wouldn’t affect day-to-day operations and would allow USA Gymnastics “to move forward with our plans to strengthen our organization.”
Under federal bankruptcy law, the filing gives USA Gymnastics the immediate benefit of halting depositions and discovery in the lawsuits.
But it also allows more victims the opportunity to ask for compensation in an orderly manner. Bankruptcy rules give troubled organizations the chance to pool money from their assets and set deadlines for victims to come forward. A federal judge oversees the process that lawyers use to search for more victims, whether through advertising campaigns or mailings.
Manufacturing companies have used the process to compensate people sickened by asbestos. Catholic dioceses and religious orders have also turned to chapter 11 bankruptcy to negotiate payouts to thousands of victims.
“It definitely creates an opportunity for many, many more people” to participate, said Washington, D.C., lawyer Mark Ellenberg, who represented women who said they were injured by the Dalkon Shield birth control device popular in the 1970s.
When pharmaceutical company A.H. Robins Co., the device’s maker, filed for bankruptcy in 1985, it faced more than 9,000 lawsuits. After a search for additional victims during bankruptcy, the company paid more than 200,000 claims in the span of about seven years, according to records kept by the University of Virginia.
In 1982, Johns-Manville Corp. became the first manufacturer to file for bankruptcy to deal with asbestos lawsuits. Dozens of manufacturers have since used the bankruptcy process to form trusts for people with asbestos-related health problems.
As part of its bankruptcy proceedings, USA Gymnastics will likely publicly invite anyone with claims against the organization to come forward within a certain time frame—including claims unrelated to Nassar.
The organization is already a defendant in lawsuits stemming from allegedly abusive coaches at gyms across the U.S., and could face many more.
There could also be more Nassar victims. He volunteered with USA Gymnastics for three decades, in addition to his work at Michigan State University, until he was fired in 2016. Victims have cited instances of Nassar’s abuse as early as the mid-1990s.
Nassar pleaded guilty last year to state sexual-abuse charges and federal child-pornography counts and is serving an effective life sentence in federal prison.
Earlier this year, Michigan State agreed to pay $425 million to more than 300 Nassar victims and set aside an additional $75 million in a trust to protect any future claims. The effort marked one of the largest pools of compensation for victims of abuse.
While advocates for Nassar’s victims expressed dismay over the bankruptcy’s effect on the lawsuits, some also saw cause for optimism.
“[Bankruptcy] may be a good device for delay, and eventually [to] obtain a settlement, but it’s a very bad device if you think you’re going to hide the truth,” said John Manly, a lawyer for many of Nassar’s victims. Mr. Manly also worked on Catholic Church sexual-abuse cases.
“The bankruptcy courts are very capable of getting at the truth,” Mr. Manly said, noting that the consequences for lying in a bankruptcy case can be steeper than lying in a civil lawsuit.
In addition to targeting the organization, plaintiffs’ lawyers could try to go after individual board members to make their clients whole, although the bar for suing directors on nonprofit boards is high.
—Louise Radnofsky contributed to this article.