Catholic Dioceses in Bankruptcy

Abstract

The Catholic Church is coping with mass tort liability for sexual abuse of children by priests. Since 2004, eighteen Catholic organizations have filed for relief in bankruptcy. Fifteen debtors emerged from bankruptcy after settling with sexual abuse claimants and insurers. During settlement negotiations, sexual abuse claimants and debtors clashed over the extent of the debtors’ property and ability to pay claims. Although such disputes are common in chapter 11 plan negotiations, the Catholic cases required the parties and bankruptcy courts to account for unique religious attributes of Catholic debtors. This article reviews the arguments and outcomes on property issues based on reported decisions, pleadings, plans, and disclosure statements. It explains the key characteristics of Catholic dioceses under canon and secular organization law and the bankruptcy contexts in which these characteristics became hot button issues. It offers an analysis of the legacy of the Catholic cases for bankruptcy law, religious liberty, and for the relationships among entities within a Catholic diocese.

Keywords: mass tort, sexual abuse, clergy, bankruptcy, chapter 11, canon law, religious liberty, property law, corporate law, trust law