By Andrew Scurria and Becky Yerak 

The Boy Scouts of America, under pressure to end a costly bankruptcy case, are exploring an exit from chapter 11 that abandons the youth group's longstanding goal of protecting hundreds of affiliated local councils from sex-abuse litigation.

The Boy Scouts put forth an alternative chapter 11 plan that would resolve sex-abuse liabilities for only the bankrupt national organization, while leaving local councils spread across the country open to thousands of legal claims.

The contingency plan isn't a first choice for the Boy Scouts, which filed for bankruptcy in part to shield the local councils and the wealth they hold from potentially devastating legal exposure over childhood sexual abuse. Since filing for bankruptcy last year, the Boy Scouts have favored a broad deal between abuse victims and local councils, which are tied to the institution but aren't themselves in bankruptcy.

That remains on the table, Boy Scouts lawyer Jessica Lauria said in the U.S. Bankruptcy Court in Wilmington, Del. But if the preferred plan falls to gain traction among victims or can't clear bankruptcy court, the Boy Scouts would pivot to an alternative version that only covers the national organization, she said.

In that scenario, local councils in California, New Jersey, New York and other states would be exposed to the kind of legal action that the Boy Scouts had filed for bankruptcy to resolve.

A Boy Scouts spokesman said that while the national-only plan isn't their preferred path, they "must be prepared to move forward with an alternative plan if necessary."

The Boy Scouts have apologized for past failures to protect children and said they want to compensate those who suffered abuse through a chapter 11 filing mean to corral litigation and ease the settlement process.

The bankruptcy case also opened a potential route for local councils to make a contribution, in return for the same blanket protection against sex-abuse lawsuits that the national organization would receive. They are counting on the settlement plan to absolve them of abuse-related liabilities, and avoid the need to file for bankruptcy themselves.

A proposed settlement trust would evaluate claims and administer payments, drawing on contributed assets and insurance policies, which victims are counting on for a big chunk of the compensation funding.

Negotiations with local councils have concerned how much they should contribute to the compensation trust to earn their liability release. The Boy Scouts have suggested they chip in $300 million, a figure they haven't agreed to and that abuse victims have rejected as insufficient.

A widespread deal hasn't emerged as the Boy Scouts move closer to a self-imposed summer deadline to exit from chapter 11. Ms. Lauria said Monday the alternate plan would save professional fees, already hovering around $100 million, and end the bankruptcy on schedule.

But there would be no contributions from local councils and no centralized forum to liquidate claims and compensate victims, she said. Abuse victims would retain their rights to bring lawsuits against local councils, as well as church, schools and other groups that sponsored troops and allegedly failed to screen out predators.

When the Boy Scouts entered bankruptcy, they expected about 12,000 sex-abuse claims to emerge. Instead, nearly 84,000 men stepped forward seeking compensation, making the it the largest chapter 11 case filed over sexual abuse.

Some of the largest and wealthiest local councils were named in thousands of abuse claims, enough to put them under severe financial strain if they can't buy peace with victims through the bankruptcy case. In court papers filed Monday, the Boy Scouts said that without a global resolution, all survivors would be "forced to revert to the tort system and likely into bankruptcy courts across the country as local councils confront a tidal wave of abuse lawsuits."

Some local councils have already put camp properties on the block to raise money for the compensation trust. The settlement offer the Boy Scouts have put forth doesn't include signed commitments from local councils, or their insurance rights.

Ricky Mason, a lawyer negotiating on behalf of local councils, said in Monday's hearing that they are prepared to contribute cash and insurance rights but that the amounts need to be realistic.

Write to Andrew Scurria at Andrew.Scurria@wsj.com and Becky Yerak at becky.yerak@wsj.com

(END) Dow Jones Newswires

April 13, 2021 10:02 ET (14:02 GMT)