Chapter 11 Bankruptcy for Churches: Minneapolis Archdiocese Joins the List

We’ve said it before and we’re likely to say it again: bankruptcy is designed to provide individuals and businesses (whether for profit or non-profit) with a financial fresh start.  And when it comes to occasionally needing a fresh start, no one is immune.  Some of the countries largest companies have at one time or another filed for bankruptcy and even the Catholic Church has found itself in need of the protections offered by bankruptcy.Chapter 11 Bankruptcy for Churches
Over the past eleven years, twelve dioceses have filed for Chapter 11 bankruptcy for churches, most recently the Archdiocese of St. Paul and Minneapolis.  As a refresher, Chapter 11 is a form of bankruptcy where debtors carry out a court approved reorganization plan that typically allows the business to continue operating during the proceedings pendency which can last from a few months to a few years.  Unlike for-profit entities, non-profit charitable organizations typically cannot be forced into involuntary bankruptcy but can voluntarily file.
The St. Paul Archdiocese filing was prompted by existing and anticipated future claims against it by sexual assault victims.  Prior to filing, the Archdiocese was the defendant in twenty sex abuse lawsuits and had notice of over 100 more potential cases.  Filing for bankruptcy triggers an automatic stay of all litigation against the debtor.  The automatic stay prohibits new lawsuits from being filed and pauses ongoing lawsuits against the debtor.
The stay does not leave those with claims against debtors without recourse.  There are exceptions to the automatic stay, some lawsuits, like criminal cases, tax audits, and certain types of contractual claims are not stayed.  Plaintiffs with claims that don’t fall within an exception can request that the court “relieve” them from the automatic stay allowing their suit to continue.  One ground for such relief is “cause,” which encompasses a number of different reasons including that the bankruptcy was filed in bad faith or that the creditor lacks adequate relief if the stay isn’t lifted.
Plaintiffs, like the ones in the Archdiocese case, may choose instead to proceed as creditors in the bankruptcy case by filing proofs of claims.  The advantage for Plaintiffs is that any sum the bankruptcy court determines is due is paid like any other creditor.  The disadvantage is that the Plaintiffs essentially turns over the decision making to the bankruptcy court foregoing their right to a jury trial.
News reports indicate that in the Archdiocese case, attorneys for those with sexual assault claims against the Archdiocese are attempting to work with it to try to come up with a mutually agreeable reorganization and payment plan.
As we’ve noted before, though Chapter 11 is often thought of as “business bankruptcy,” it can also serve as an effective tool for high net worth individuals who may benefit from reorganizing their debt under Chapter 11.  If you or your business is considering bankruptcy, the Jacksonville bankruptcy attorneys at Adam Law Group can help you evaluate the best strategy for obtaining a financial fresh start.