"Tribal economies are not immune to the recent global financial crisis and economic downturn. The Indian gaming industry was hit especially hard. After consistent year-over-year growth in tribal gaming revenues during the 1990s and continuing through 2008, industry revenues declined in 2009 and have continued to stagnate. Amid reports of several tribal casino defaults—and many more tribes with significant debt maturing in the near future that will need to be restructured—tribes and creditors must consider two questions: Are tribes and their corporations eligible for bankruptcy? If so, is bankruptcy an attractive option for a tribal casino?

A number of recent articles conclude (or assume without discussion) that bankruptcy is unavailable for tribes and their gaming businesses. See e.g., Steven T. Waterman, “Tribal Troubles—Without Bankruptcy Relief,” XXVIII ABI Journal 10, 44-45, 87 (January 2010); Shmuel Vasser and Janet Bollinger, “Casino Creditors, Heads-Up: American Indian tribes may be ineligible for bankruptcy,” New York Law Journal, Dec. 13, 2010. See also Anthony S. Broadman, “Indian Self-Governance and Bankruptcy: The Case for Tribal Law,” Casino Enterprise Management, Feb. 1, 2011 (citing Waterman's conclusion that tribes are ineligible for bankruptcy relief).

However, this conclusion is far from certain. Indeed, a reasonable case can be made that tribal corporations are in fact eligible for bankruptcy. And, in the context of a tribal casino, bankruptcy may be an attractive option for tribes to restructure their looming debts—but much less attractive for creditors.

Although some American Indian tribes were historically positioned within federal bankruptcy statutory provisions, the modern Bankruptcy Code (U.S.C. Title 11, or the “Code”) does not expressly refer to American Indian tribes. Because tribal entities are not statutorily defined, existing Code definitions must be analyzed to determine whether and how tribes fit them.

Individuals, partnerships, and corporations are generally eligible as Chapter 7 and Chapter 11 debtors, but most “governmental units” are not “Governmental units” are defined to include the federal government, states and municipalities, foreign states, and “other foreign or domestic government[s]. . . .”

Though the issue has been raised in many cases, courts are split about whether tribes are “governmental units” under the Code. To date, the “governmental units” question has not arisen for tribes as debtors, but rather in the context of sovereign immunity of tribes as creditors. Section 106 of the Code expressly abrogates the sovereign immunity of governmental units to the extent set forth in 59 enumerated Code sections. Section 106 was amended in 1994 to provide that a governmental unit that has filed a proof of claim in a case is deemed to have waived its sovereign immunity with respect to certain claims.

One line of cases, decided mostly under the current Section 106, holds that tribes fit the definition of “governmental units” and, as a result, they waive their sovereign immunity by filing a proof of claim.6 Another line of authority, decided under both the current version as well as the pre-1994 version, holds that Section 106 does not clearly and unequivocally abrogate tribal sovereign immunity, and that tribes do not fit the definition of “governmental units.”"

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# Craig A. Barbarosh, Daron Tate Carreiro, Blaine I. Green and Mark D. Houle: Is corporate bankruptcy an option for tribal casinos? (Lexology 2/28)
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