Chapter 11 bankruptcy is used to protect businesses that are struggling financially. The process evaluates and reorganizes a business’ assets. In doing so, a business can pay off debts while maintaining enough capital to continue operating.
On May 1, 2020, the Archdiocese of New Orleans filed for bankruptcy. It was the first Catholic diocese in the United States to seek bankruptcy protection during the pandemic. The archdiocese gave two reasons for the bankruptcy filing:
- The New Orleans Archdiocese faces a growing number of clergy abuse lawsuits.
- The New Orleans Archdiocese lost revenue because of the COVID-19 restrictions.
This filing primarily affects three groups: priest abuse victims with pending cases, survivors looking to file new cases and the archdiocese’s debt holders. The bankruptcy filing halted open clergy abuse lawsuits filed against the archdiocese. It may also require priest abuse victims to file new cases by September 29, 2020.
Catholic Dioceses File For Bankruptcy
Since 2004, 25 American dioceses have filed for bankruptcy. The New Orleans Archdiocese is one of the latest to do so. These Catholic dioceses filed for Chapter 11 bankruptcy protection to handle a growing number of sex abuse claims.
New Orleans Archdiocese Seeks Bankruptcy Protection
The Archdiocese of New Orleans faced allegations of priest abuse for years. In 2018, the archdiocese released a list naming more than 50 clergy members accused of abuse. These clergy members were removed from ministry because of credible sex abuse allegations.
Subsequently, the archdiocese has faced many lawsuits in state courts. To date, it has paid more than $500,000 in victim settlements.
The archdiocese has been considering bankruptcy due to financial strains from litigation. However, financial turmoil from COVID-19 restrictions sealed the decision.
The bankruptcy filing will only affect the administrative offices of New Orleans Archdiocese.
According to a statement from the archdiocese, “The Archdiocese’s action will not affect individual church parishes, their schools, schools run by the various religious orders, or ministries of the church.”
According to the archbishop, prayer and consultation led to the final decision to file for bankruptcy.
“I, along with a team of advisors, believe that reorganization will create an opportunity for us to renew our commitment to the faithful and the New Orleans community by restructuring our financials, increasing our transparency and creating a path forward in hopes that we can continue and strengthen our core mission: bringing Christ to others.”
Archbishop Gregory Aymond
COVID-19 Affects Dioceses’ Revenue
To fight the pandemic, states enacted stay-in-place orders and social distancing measures. Religious organizations were forced to close public places of worship. This led to a loss of revenue for many of these organizations.
Catholic dioceses lost revenue from mass collections (tithing), social fundraisers and other revenue-driving programs. This revenue loss could cause more bankruptcies in the Catholic Church.
Sex Abuse Victims Are Not Supportive of the Bankruptcy
Victims of clergy child sex abuse filed a petition to dismiss the New Orleans Archdiocese’s bankruptcy case. In the petition, the survivors claim the church filed for bankruptcy to keep priest abuse lawsuits from moving forward.
The bankruptcy filing paused more than 30 sex abuse lawsuits. If the bankruptcy proceedings move ahead, the plaintiffs will have to seek compensation through the bankruptcy court. Generally, plaintiffs receive less compensation from bankruptcy proceedings versus a favorable verdict or legal settlement.
In June 2020, the archdiocese filed a motion to set a September deadline for new sex abuse claims. If approved, survivors who were abused by clergy in the New Orleans Archdiocese would need to file a claim through the U.S. Bankruptcy Court by September 29, 2020.
U.S. Bankruptcy Court Judge Meredith Grabill is overseeing the case. Grabill will review the petition and determine if the bankruptcy filing is legitimate.
Bankruptcy also protects archdiocesan officials from testifying under oath. Additionally, it prevents the release of internal church documents. One plaintiff filed a motion against this protection. The motion requests the archdiocese release confidential documents surrounding its handling of priest abuse allegations.
New Orleans Archdiocese Fails To Pay Debt
Clergy abuse lawsuits can cost a diocese a significant amount of money. The New Orleans Archdiocese knows this all too well. In 2017, the archdiocese issued municipal bonds to pay compensation to victims.
A municipal bond is a debt obligation between the issuer and investor.
When an investor buys a municipal bond, he or she is loaning money to the bond issuer. The bond issuer must then repay the loan amount, as well as set interest payments to the bondholder.
New Orleans Archdiocese Misses July Bond Payment
As a direct result of the bankruptcy filing, the Archdiocese of New Orleans missed its July 1, 2020 bond payment. On June 26, 2020, a regulatory bondholder notice was issued by the bondholder’s bankruptcy trustee, TMI Trust Company. The notice announced the archdiocese would not make the July payment.
The majority of the archdiocese’s assets are frozen during bankruptcy proceedings.
It is unclear whether the church will be able to make its August payment. After a default in payment, bondholders have no idea as to how much or when they will receive payment.
Plaintiffs, other abuse survivors and bondholders alike await updates about the archdiocese’s bankruptcy proceedings. Time will tell how this bankruptcy proceeds and how clergy abuse survivors fair in the end.
If you or a loved one are a survivor of childhood sexual abuse, you may have legal rights. Our team of attorneys is here to help you seek justice against predators and the organizations that cover up abuse. Learn more about your legal options, the claims process and potential compensation.
Request a free, confidential sex abuse case evaluation by calling 1-866-371-8506 or sending a message through our secure contact form.
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