Secular bankruptcy law: Why the Catholic Church uses it

It’s not a lack of money; it’s about protecting image, pooling insurance, and finality.

Why does a non-secular organization like the Roman Catholic Church use secular bankruptcy law when faced with child sexual abuse claims? Many mistakenly assume it is because the Catholic diocese, order or institute does not have enough money to pay claims.  However, there are other benefits to bankruptcy, even when the Catholic entity can pay.

Chapter 11 of the United States Bankruptcy Code was created to allow secular corporations the opportunity to shed themselves of debt and continue to operate, keeping their employees employed. As discussed below, the Roman Catholic Church uses this law for other benefits.

There have been 17 Catholic bankruptcies to date.  Our firm represents a majority of abuse survivors in the 17th case, as reported in the Wall Street Journal.  Click here to read article.

In the past 16 bankruptcies, sexual abuse claimants were paid; Diocese, Orders and Institutes who file bankruptcy have enough money to partially compensate victims. (In the bankruptcy settlements, we negotiate that the church entity is also required to implement non-monetary changes for the protection of kids).   Catholic organizations who can pay claims file bankruptcy to take advantage of secular, corporate bankruptcy laws (Chapter 11) to protect their imagepool insurance, and create finality.

Protecting Image

By filing bankruptcy, the Catholic entity puts a stop to discovery of image-damaging information. Filing bankruptcy triggers the “automatic stay”. The automatic stay stops all action in any lawsuits against the entity, thereby preventing victims from uncovering embarrassing or revealing information that the church entity might have on the perpetrator, their attempts to cover up the perpetrator’s abuse history, or any other potentially image-damaging information.

Pooling Insurance

A Church entity uses bankruptcy to capture and identify the universe of insured claims so it can pool its insurance coverages to compensate abuse survivors.  The more insurance it uncovers, the more it is protected from having to liquidate its property and other assets to pay claims.  The insurance companies will pay an additional premium to the church entity to “buy back” their policies as one mechanism to avoid liability for future claims.  The other mechanisms they and the Church use are a “bar date” and “channeling injunction” (discussed below).

Finality

The Church entity will file bankruptcy to bring finality to claims against it for past abuse.  The first secular protection the Church seeks after filing bankruptcy is a “bar date”. This is a deadline for victims of abuse that occurred before the bankruptcy to file their claims.  Any victim of past abuse who does not file a proof of claim by this deadline generally loses his or her claim, except for “late filed claims” and “future claims”.

Late filed claims are claims filed after the bar date, but before the Church entity has been granted a “discharge” in bankruptcy.  In some circumstances, late filed claims are allowed.  Future claims are claims brought after the bankruptcy case ends that meet criteria set forth in the “plan of reorganization” (which contains the settlement agreement).  Future claims are “channeled” away from the Catholic entity and its insurance companies into a “future claimant fund” that is funded by the Church and the insurance companies as part of the bankruptcy settlement.  However, these future claims typically receive a fraction of the amount recovered by timely filed claimants.

Thus, by obtaining a bar date and a channeling injunction the Church and its insurance companies create finality and avoid ongoing liability for past abuse.

In summary, the Roman Catholic church entities file bankruptcy not because they don’t have enough money to pay claims, but for all the reasons listed above. They claim bankruptcy so they can get the secular protections of the United States bankruptcy law, protections originally drafted for U.S. corporations.

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Create bankruptcy law to shed someone of debt

The minute you file bankruptcy, all your creditors (anyone with a claim against you for money) has to stop collecting it. That’s the benefit of bankruptcy law, they stop the creditors for coming against you asking for money, otherwise they would violate the law. They have to put their money into their bankruptcy court.

The Debtor he/she/it has to notify its creditors that they have filed for bankruptcy, and if they want to make a claim, they can make a claim.

Recent lawsuits filed by courageous survivors highlights exploding epidemic of abuse in Guam by Catholic Priests

Two recent lawsuits have been filed by courageous survivors who are represented by a team of attorneys, including Leander James and Craig Vernon of James, Vernon and Weeks, P.A.  “By having the courage to come forward to seek justice, these brave survivors are speaking to other survivors … telling them that they are not alone and that it is not their fault.”  Comments Mr. James.

One of these brave survivors, D.C., was sexually abused by a priest, Father Antonio Cruz, in the late 1950s, when Cruz was the parish priest at Nuestra Señora De Las Aguas Church in Mongmong.

D.C. was sexually assaulted by Father Cruz on what was supposed to be a car ride around the island.   Father Cruz drove down a barren street and parked in the jungle, hidden from view of any other person or vehicles.   During the car ride back, Father Cruz told D.C., who was an altar boy not to tell anyone about what had happened and bribed D.C., offering him “anything he wanted,” even saying the underage boy could borrow his car.

Read more about D.C.’s lawsuit here.

The other courageous survivor M.B.,was sexually abused by Father Andrew Mannetta.   This was the first lawsuit filed against Mannetta, who was known as “Father Andy.”

Mr. Vernon explains how Father Andy was trusted by M.B. and his parents.    He was a Priest.  He was supposed to be a holy man of God.   For him to commit horrendous acts that destroyed the innocence of a young altar boy, is the ultimate betrayal of trust.”

Mannetta’s assignment history reveals a disturbing pattern leading him to Hawaii, where, coincidentally, James and Vernon have successfully represented many other survivors of sexual abuse.   “This notorious pedophile was shifted from Parish to Parish within Guam, before being transferred to Hawaii.  He left a trail of abused and broken children everywhere the Church sent him, until he was finally defrocked as a Priest around 2002,” comments James.

Read more about M.B.’s lawsuit here.

“As one of these articles points out, more than 40 sex abuse cases have been filed against the Catholic Church in Guam thus far.    This is becoming an epidemic of abuse.   Justice will prevail.”  Comments Vernon.