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Frequently Asked Questions
On September 29, 2023, the Archdiocese of Baltimore filed for reorganization under Chapter 11 of the United States Bankruptcy Code.
WHAT IS A CHAPTER 11 REORGANIZATION AND HOW DOES THE CHAPTER 11 FILING AFFECT THE ARCHDIOCESE OF BALTIMORE?
1. What exactly is Chapter 11?
Chapter 11 reorganization is part of the United States Bankruptcy Code where a company or organization seeks to reorganize financially under court supervision, with the goals of being able to address the financial claims of those to whom it owes money and to emerge with its operations intact. A Chapter 11 filing immediately stops all legal actions against the entity. The Archdiocese of Baltimore rooted its decision to file for Chapter 11 reorganization to provide a process for all victim-survivors to be compensated while continuing the mission and ministries of the Church, including its parishes, schools, and charitable institutions.
2. Does a Chapter 11 lead to an organization shutting down and selling all its assets?
No, a Chapter 7 bankruptcy winds down the operations of a business or organization and liquidates all assets. On the other hand, Chapter 11 reorganization is designed to keep an organization open and operating and fulfilling its mission.
3. What prompted the Archdiocese to file for Chapter 11 reorganization?
A new Maryland law, the Child Victim’s Act (CVA) takes effect on October 1, 2023. The law eliminates statutes of limitations and repose relating to civil claims of child sexual abuse. It was anticipated that many lawsuits would be filed against the Archdiocese after the law took effect. Litigation costs and settlements would likely exceed many millions of dollars. There is no deadline for filing lawsuits under the CVA, meaning that lawsuits would continue indefinitely, making planning for a resolution of all claims impossible.
4. Have other Roman Catholic dioceses filed for Chapter 11 reorganization?
Yes; 32 other Roman Catholic dioceses in the United States have filed for reorganization under Chapter 11.
5. How does Chapter 11 reorganization work?
In other diocesan reorganizations, the court has set a period of time for victim-survivors to submit claims. Victim-survivors, the Archdiocese, and insurance companies have negotiated toward an agreed-upon plan that provides a process for all victim-survivors to be compensated while the operations and ministries of the Archdiocese continue. After victim-survivors agree to the plan and the court approves it, future claims relating to past incidents of abuse cannot be brought against the Archdiocese and would be channeled to the established trust. The Archdiocese will use its unrestricted assets to provide funds to the trust and pay various costs. The trust will also be funded with insurance proceeds and contributions from parishes, schools and related entities. In dioceses that have been through this process, the vast majority of funding in the trust has come from diocesan unrestricted assets and insurance proceeds.
6. Do legal costs associated with this filing add to the Archdiocese’s financial burden?
There are legal costs associated with filing under Chapter 11, but there would also be legal expenses to defend the Archdiocese in litigation if the Archdiocese had not filed for bankruptcy. One important aspect of filing for Chapter 11 reorganization is that filing stays (stops) all civil actions, judgments, collection activities and related actions by claimants. The stay, in effect, provides time for the organization filing for Chapter 11 to form a reorganization plan detailing how the available assets will be used to compensate victim-survivors while continuing the mission and ministry of the Church.
7. Why has the Archdiocese decided to file for bankruptcy reorganization?
The Archdiocese’s goal in responding to the CVA is to provide a process to for all victim-survivors to be compensated while permitting the Archdiocese to continue its important missions and ministries. The Archdiocese’s assets are limited and used for its ongoing ministries. Litigating individual lawsuits is expensive, slow, and unpredictable, resulting in those claimants who filed suits first receiving all available funds while later claimants receive nothing. Chapter 11 provides time for the Archdiocese to form a reorganization plan detailing how assets will be used to pay compensation and permit it to continue its operations.
8. How long is the Chapter 11 reorganization process expected to take?
Other diocesan Chapter 11 reorganization processes have typically taken about 3 years. During this process, dioceses largely continue operating as usual. Once a plan for reorganization has been voted upon by victim-survivors and approved by the court, the plan becomes effective, marking the conclusion of the case.
9. What financial control will the Court have over the Archdiocese in Chapter 11 bankruptcy?
The Court will hear and decide the Archdiocese’s requests to conduct business as usual, including carrying out its ministries and paying its employees, while the Archdiocese develops and submits a Reorganization Plan to satisfy all claimants. While the Archdiocese undertakes the process of submitting and obtaining approval of a plan, it will be required to make regular financial reports of its activities to the court. Information about Chapter 11 will be provided regularly through an official court website and at www.archbalt.org
10. Who made the decision to file for Chapter 11 reorganization?
The Archbishop of Baltimore made the decision to file for reorganization, in consultation with and after receiving unanimous support from the Archdiocese’s College of Consultors and Board of Financial Administration.
11. Does the Archdiocese have insurance?
Yes. The Archdiocese has been in discussions with its insurers to respond to claims.
12. Some say the new law is not constitutional. Why not wait until that has been decided to file for Chapter 11 reorganization?
Lawsuits are expected to be filed against many entities throughout the state, which will ultimately require the Maryland Supreme Court to decide the question of whether the CVA is constitutional. This is likely to be a lengthy process, and the Archdiocese believes that pursuing Chapter 11 reorganization now provides the best process to allow for the compensation of all victim-survivors and continued ministry.
13. How might the Seek the City to Come initiative be impacted by the Chapter 11 process?
This important initiative will continue. The strong communities in Baltimore City and some Baltimore County parishes will continue to work together to reimagine Catholic life in the city.
HOW DOES THE CHAPTER 11 FILING AFFECT VICTIM-SURVIVORS?
1. What does reorganization mean for survivors and their court cases?
This Archdiocese has limited resources for adequately responding to claims in the current legal environment. We believe and hope that the Chapter 11 process will provide survivors, any other claimants, the Archdiocese, and its insurers with a place where all of these claims can be settled, and the survivors compensated in a timely manner. Before the filing of the Chapter 11 proceeding, the Archdiocese voluntarily provided counseling to anyone seeking it. We intend to continue to provide those services while we are in Chapter 11 proceedings.
HOW DOES THE CHAPTER 11 FILING AFFECT ARCHDIOCESAN OPERATIONS AND EMPLOYEES?
1. Will the operations of the Archdiocese be immediately impacted?
No. Under Chapter 11, an entity can maintain normal operations and continues to provide employees with salaries and benefits, and retiree benefits.
2. Will the Archdiocese be able to pay employees as usual as it reorganizes?
Yes, the Archdiocese will continue to pay employees and retiree benefits in the ordinary course of business.
3. Will retired priests and employees still receive their pensions and benefits?
Yes, retiree benefits will continue to be paid.
HOW DOES THE CHAPTER 11 FILING AFFECT YOUR PARISH, SCHOOL, OR OTHER ENTITIES?
1. How will reorganization affect the daily operation of your parishes, schools and other entities?
Archdiocesan parishes and schools are separate legal entities, distinct from the Archdiocese. Charitable entities such as Catholic Charities are similarly separate legal entities. The ministries and operations of parishes, schools, and other entities, such as our Catholic Charities agencies, should not be directly affected by the Archdiocese’s Chapter 11 proceeding. Parishes and schools should continue following all policies and processes moving forward.
2. If the Archdiocese is in Chapter 11 bankruptcy, is my parish or school in Chapter 11 as well?
No. Parishes, schools, Catholic Charities, the Inter Parish Loan Fund, Inc., and The Catholic Community Foundation of the Archdiocese of Baltimore, Inc. are separate entities and have not filed for reorganization under Chapter 11.
3. Will the Archdiocese sell parish property or use parish assets to pay its debts?
No. The Archdiocese cannot use property or assets of parishes, schools, and other entities which are incorporated separately. It is our sincere hope and prayer that the celebration of Sacraments and regular parish life will be unaffected by this difficult financial process to resolve claims. One way in which the Archdiocese hopes to positively impact parishes is to seek a court-approved process which stops any child sexual abuse-related litigation against parishes and schools so that those claims can be settled in the same way as claims against the Archdiocese. Future claims against the parishes, schools, and Archdiocese are expected to be resolved through a survivor’s fund established as part of the Archdiocese’s Reorganization Plan. Thus, all claims would be settled from the same fund. Final decisions regarding our financial plans must be approved by the Court.
4. Will parishes and schools be asked to contribute to the resolution of claims in the bankruptcy process?
In other dioceses, in a later stage of the proceedings, parishes and schools have contributed to the trust funds created by reorganization so that they can receive the benefits of what are known as third-party releases and channeling injunctions. These resolve potential liabilities of the parish or school related to past incidents of child sexual abuse. It is expected that at some point, parishes, schools, and other entities related to the Archdiocese will be asked to make such a contribution to receive this benefit. The amount of any such contribution is not known at this time.
5. Are Catholic parishes and schools going to pay for the bankruptcy fund to compensate victims while the Archdiocese pays nothing?
No. One misleading media report stated: “The church said it’s also planning to create a trust to pay out claims, 55% of which will come from insurance carriers and the rest from the debtor’s parishes, schools and related charities.” First, the Archdiocese has not proposed any plan at this point; such a plan will be developed in consultation with victim-survivors, insurance carriers, and other interested parties in a process that is expected to take two to three years. Second, a review of plans approved in other diocesan bankruptcies around the country indicate that on average, about 55% of the trust funds established to compensate victims have come from insurance companies while about 45% of the funds have come from Catholic Church entities, with by far the largest portion coming from the dioceses themselves (from their long-term, unrestricted assets) and a relatively small portion from parishes, schools, and other entities related to the dioceses.
HOW DOES THE CHAPTER 11 FILING AFFECT DONATIONS?
1. Will the gift I place in the collection basket go to pay for the Chapter 11 reorganization?
The money you place in the collection basket or give to your parish online will continue to be used to fund your individual parish. Your contributions are essential to all of the parish’s obligations, including salaries, utilities, cathedraticum and ministerial outreach.
2. I am hesitant to give to a “Chapter 11” organization. Why should I?
Your contributions to the Archdiocese provide funding to operate crucial ministries which meet the needs of people from all walks of life. While the Archdiocese reorganizes, these needs continue and can only be met with the financial support of the faithful.
3. I made a large gift to the Archdiocese for a specific cause. Is that money protected?
Yes. Restricted gifts and funds are protected under law and cannot be used to settle claims.
4. Will my gift to the Annual Appeal for Catholic Ministries be used to pay legal settlements?
No. Gifts are made to the Annual Appeal to support specific ministries and programs, and those funds will be used for those purposes.
5. How do I ensure that my gift and/or planned gift to the Archdiocese is not used to pay settlements?
Restricted gifts can only be used for the purpose for which they were given.
6. Will Chapter 11 reorganization affect Catholic Charities?
Catholic Charities is a separate legal entity and its assets are not part of the reorganization. Donations made to Catholic Charities will be used only for the purposes and programs of Catholic Charities. We do not anticipate the programs of Catholic Charities to be impacted.
7. Will Chapter 11 affect the Catholic Community Foundation of the Archdiocese of Baltimore?
The Catholic Community Foundation of the Archdiocese of Baltimore, Inc. is a separate legal entity and its assets are not part of the reorganization. Donations made to The Catholic Community Foundation will be used only for the stated purposes of the donation within the Catholic Community Foundation. We do not anticipate the support of ministries provided by the Catholic Community Foundation to be impacted.
