Key Takeaways:

According to a recent Supreme Court case, Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, the Bankruptcy Code takes away immunity from all governments, including Native American tribes.

This means that when it comes to bankruptcy law, tribes are treated just like any other government.

If you’re involved with lending or doing business with tribal entities, this is a pretty big deal.

Here’s the backstory:

The Lac du Flambeau Band, a recognized Native American tribe, runs a payday loan business named Lendgreen.

They lent money to Brian Coughlin, who almost immediately filed for bankruptcy under Chapter 13.

This filing usually stops collections efforts, but Lendgreen kept trying to get their money back.

Coughlin wasn’t happy about it, so he took them to Court to stop the collections and asked for damages because of the stress.

1. The case first landed in the Bankruptcy Court, where it got dismissed because of the tribe’s sovereign immunity, which means they’re usually protected from certain lawsuits. But the First Circuit Court disagreed and reversed the decision, stating that the Bankruptcy Code could take away a tribe’s immunity.
2. The main point from Justice Jackson, who was on the winning side of the Supreme Court ruling, revolves around two parts of the Bankruptcy Code. One part, Section 106(a), takes away governmental units’ immunity for specific bankruptcy provisions. Another part, Section 101(27), defines a governmental unit to include other foreign or domestic governments. With these definitions, the Court said that Congress meant for the Bankruptcy Code to apply to Native American tribes.
3. On the other hand, Justice Gorsuch, who disagreed with the majority, made the point that tribes aren’t exactly foreign or domestic governments – they have a unique status. He didn’t believe Congress clarified enough that they wanted to remove the tribe’s immunity.