Bankruptcy Process

Nearly forty dioceses have filed for bankruptcy protection in recent years. These legal proceedings can seem intimidating and confusing, but the process and its purposes can be understood fairly simply.

The Archdiocese filed for chapter 11 bankruptcy to “reorganize.” What does that mean? Usually, it means that they cannot continue to operate in the same way because they have too many creditors who want to be paid, so they file for bankruptcy to seek protection so they can deal with all of their creditors at once. They hope that the bankruptcy process will allow them to pay creditors what they can and then move on to operate successfully in the future. Under federal law, all legal entities have a right to use bankruptcy for this purpose, so long as they meet the requirements and follow the rules.

Catholic Church bankruptcies are not like other bankruptcy filings, of course. This is because a diocese will file for bankruptcy mostly to deal with claims asserted against them based on sexual abuse perpetrated by priests or lay persons employed by the diocese. Regular creditors in bankruptcy cases are seeking to get paid for business that they conducted with a bankruptcy debtor. Survivors of sexual abuse are not like regular creditors. Their claims are based on traumatic events that they experienced years earlier and, of course, survivors did not choose to become creditors of the Archdiocese.

The Department of Justice appoints what is called a “committee” at the beginning of most bankruptcy cases, which is made up of a select group of creditors who have certain claims against the debtor. In most diocese bankruptcies, to make sure that the unique interests of survivors are protected, the committee will be made up of people who are survivors of sexual abuse themselves, so they have understanding and empathy relating to the experiences and perspective of other survivors.

Once appointed, the Committee is allowed to hire professionals, such as attorneys, and the bankruptcy estate (the diocese) is required to pay the reasonable fees and costs of those professionals. Then, with help from its attorneys, the Committee will negotiate with the diocese to do two primary things: (i) recover as much money as possible to pay survivor claims, and (ii) impose as many protections as possible on the diocese to ensure that children will be protected from abuse in the future. These negotiations are very complex and usually take years to complete.

If the Committee is able to reach a settlement with the diocese, the diocese and the Committee will then present a “plan of reorganization” to the bankruptcy court. These plans are very long documents and they deal with hundreds of issues. But the things that are usually most important to survivors include how and when survivor claims will be paid and how children will be protected going forward. In terms of how claims are paid, Committees usually choose a claims reviewer to review all survivor proofs of claim. That reviewer will allocate points to each survivor claim based on detailed guidelines that will likely be written by the survivors serving on the Survivors’ Committee.

Before a plan of reorganization can be approved by the bankruptcy court, all creditors (including survivors) have a chance to review the plan and vote for, or against it. If you are a survivor creditor, you may receive many documents throughout the bankruptcy case, but the plan is one document that you will want to pay particular attention to.