Bankruptcy Lawyer Bryan W. Stone answers the question “What is Chapter 11 Bankruptcy?”
It’s sadly an all too common story these days, a claim of sexual abuse arises in a small town or city and, not too long after that, many more claims emerge, with victims feeling safe enough to come forward with their own stories. Adding insult to injury, these sexual abuse cases have frequently led to bankruptcy filings, with the churches responsible for paying the verdicts seeking ways to help avoid the potentially crushing financial burden of dozens of million dollar payouts.
Recently, the Roman Catholic Diocese of Duluth, MN became another such example of this approach. Earlier this week, the diocese filed for Chapter 11 bankruptcy protection in the local bankruptcy court. Critics have said that the decision to file not only denies victims the full extent of financial compensation to which they are entitled, but also works to end the discovery process by putting a halt to ongoing litigation, denying lawyers access to information that might uncover other victims.
The decision to file for bankruptcy protection stemmed from a jury award last month of $8.4 million. The case concerned a man who was repeatedly abused by a priest in the late 1970s. The victim alleged that the diocese was not only aware of the abuse, but worked to systemically cover it up. The diocese, for its part, denies these charges and says it may appeal the ruling.
To put the $8.4 million into some kind of context, the diocese’s entire annual budget last year totaled $3.3 million. Additionally, the Duluth diocese is facing at least six other formal lawsuits and a dozen other claims of sexual abuse. Experts say that should the Duluth diocese follow the path of other dioceses embroiled in sexual abuse claims, these numbers could increase dramatically as media attention leads other victims to come forward.
Given the mounting number of claims and the enormous potential cost, the diocese says that they’ve been forced to file for bankruptcy. The church has a finite pool of resources and it argues that bankruptcy is the fairest way of apportioning those resources. The church said that it had hoped to reach individual settlements with victims outside of the bankruptcy process, but the size of the recent award would have left little money for any future claimants.
By filing for bankruptcy, all claimants will be forced to negotiate an eventual settlement with the bankruptcy trustee, someone who is charged with ensuring creditors (or, in this case, victims) receive a fair share of the debtor’s assets. The bankruptcy process is designed to fairly distribute limited assets when it becomes impossible for the organization seeking bankruptcy protection to pay all potential claims.
Though the bankruptcy will mean all victims receive an opportunity to file a claim for financial compensation, it does mean that all pending litigation against the diocese is halted. Though this can be good for debtors, preventing them from being harassed by creditors or falling even further into the debt, it denies the lawyers prosecuting this case an opportunity to continue the discovery process. And it’s this discovery process that has been so successful in turning up new potential victims and in finding evidence to show that the diocese or specific officials knew and tried to hide the abuse.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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