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Bankruptcy filing sparks questions of Native American sovereignty

Some of our San Diego area readers may remember a post from last month detailing the beginnings of the bankruptcy process for the Santa Ysabel Resort and Casino. The resort and casino filed for Chapter 11 bankruptcy protection in July, apparently looking to restructure the business model of the company and come to an agreement with their creditors on a repayment plan.

Unfortunately, the Chapter 11 process is not off to a good start for Santa Ysabel, as their biggest creditor has claimed that the bankruptcy filing should be dismissed because the founder of the resort and casino, the Iipay Nation of Santa Ysabel, is not covered by the bankruptcy code of the United States.

Businesses founded by Native American tribes may face some hurdles in seeking bankruptcy protection. But why? Well, Santa Ysabel's creditor, another Indian tribe, claims that because Native American tribes are widely considered to be sovereign nations, any unincorporated business founded by a tribe is not eligible for bankruptcy protection.

The Iipay Nation of Santa Ysabel disagrees, however, claiming that their constitution allows their chairman to send tribal businesses through the bankruptcy process.

The competing claims will likely produce some interesting results, because not only is the U.S. bankruptcy code involved; the dispute also relates to federal laws regarding interactions with Indian tribes who may or may not own or operate casinos on Native American land.

For the time being, it appears to be an open question as to whether the Santa Ysabel Resort and Casino will be able to take advantage of the protections a company gets when filing for Chapter 11 bankruptcy.

Source: The Wall Street Journal, "Indian Casino Seeks Bankruptcy Harbor," Katy Stech, Aug. 6, 2012

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