What Could Bankruptcy Look Like For The Pittsburgh Diocese? It Depends

Oct 9, 2018

Most of the financials of Pennsylvania Catholic dioceses’ are a mystery to outsiders. As religious institutions, they don’t have to report income or spending. 

But bishops across the state claim changes proposed by lawmakers in Harrisburg could cause the church to take a big financial hit.

Pennsylvania’s legislature is considering changes to the state’s statute of limitations law. Among the proposed amendments is a "civil window," which would allow victims of sexual abuse to sue in cases where the statute of limitations has run out. The current statute prevents most living survivors of child sexual abuse, outlined in a state grand jury report, from suing their perpetrators and the institutions that allegedly protected them.

Last month, the state’s bishops collectively released a statement proposing a compensation fund for survivors as an alternative to the civil window. They claim that the fund would expedite payments to survivors, and prevent expensive and lengthy litigation. The bishops said the civil window would inevitably bankrupt their institutions.

“Bankruptcy would cripple the ability of a diocese to provide compensation and healing for survivors, while vastly reducing or eliminating social service programs that greatly benefit all Pennsylvanians by serving some of the most at-risk people in our communities,” the statement read.

While that outcome is possible, the full picture of any bankruptcy is impossible to know before it happens, according to Judge Judith Fitzgerald, a retired bankruptcy judge in Pittsburgh. She doesn’t represent or work with any of the dioceses, survivors groups or lawmakers.

Bankruptcy is a federal law, where a person or business, “the debtor,” owes money to somebody, “claimants.” It’s a way to get a handle on those debts, centralize them and make a plan to address them.

Fitzgerald said in the case of a diocese facing numerous claims, a trust could be created. This would essentially be a separate bucket of money that exists for the sole purpose of paying claims, and helps ensure that everyone entitled to payments receives some compensation.  

If a diocese goes this route, it wouldn’t have to deal with hundreds of individual lawsuits pending against them.

“Through the course of the bankruptcy, the diocese would negotiate with representatives of those victims, figure out how many claims they estimate would likely to be filed against that trust, and figure out how much money can be contributed into that trust,” said Fitzgerald. “And all that process would be open and confirmed by a bankruptcy court.”

Fitzgerald said it is a transparent and supervised process.

So how could that impact a Catholic diocese in Pennsylvania? How much money would go into the trust? What assets would a diocese have to liquidate? How much would each victim receive? Could future claims be filed against the trust?

Fitzgerald said the answer to all of those questions is the same: “It depends.”  

The mechanism for funding and payment are determined on a case-by-case basis, and every bankruptcy looks different. The result depends in part on negotiations, but the overall impact also rides on how the diocese would choose to execute its bankruptcy plan.

The court itself doesn’t dictate to a charitable institution what they can and can’t spend money on. The debtor, in this case a diocese, determines its own priorities and management to an extent.  

Fitzgerald adds, “bankruptcy is expensive.” Aside from the money put into the trust to pay claims, a bankrupt entity has to pay a tremendous amount of legal and other fees.

“The problem may be for any organization that in order to pay those fees, to make sure that your bankruptcy carries out its goal, which is to get you out of bankruptcy and back into a normal business, maybe you don’t have money on a day to day basis to do everything you did before.”

The diocese supports a variety of charitable initiatives. According to a spokesperson, the mission of the Pittsburgh Diocese is to support its parishes. Those parishes in turn provide a variety of charitable services such as counseling programs. So it is feasible that if the diocese were financially strained, it could impact its support of parishes, and ultimately, the programs those parishes provide the community.

There are a variety of autonomous organizations such as Catholic Charities and St. Vincent DePaul that the diocese helps financially, but are not fully responsible for.

Across the world, the Catholic Church has already spent billions of dollars to deal with cases of sexual assault. That includes millions spent by the Pittsburgh Diocese for settlements, payoffs, and accommodations, according to a recent grand jury report. A spokesperson for the Diocese said the largest settlement ever made was a “voluntary outreach fund of $1.25 million,” which was distributed in 2007 among 31 individuals. It’s difficult to determine where settlement money comes from, but at least one payment of approximately $10,000 was diverted from the Catholic Charities fund to pay for the education of a survivor’s children. The Pittsburgh Diocese denies the accuracy of the reporting on that payment as written within the grand jury report.

A number of sexual abuse survivors, advocates, and some lawmakers say financial impact should not be a deterrent from holding institutions accountable for harm that’s been inflicted.

“It’s the only way you’re going to stop this—by putting institutions at risk,” said former GOP House Speaker Denny O’Brien at a rally last month in support of the civil window provision. “It is the only answer.”

At least 19 Catholic dioceses across the country have filed for bankruptcy. Some have been extremely drawn, and are still ongoing. Each has cost millions of dollars. The San Diego Diocese for instance, was forced into bankruptcy after settling with survivors for $198 million. All of the dioceses that have declared bankruptcy have continued operating.

The civil window and statute of limitation legislation was easily approved by the House in September, and is currently in a Senate committee.

*Updated on October 11, 2018 at 12:30 pm to include a response from the Pittsburgh Diocese regarding payments to sexual assault survivors and their families. The diocese denied a request for comment prior to publication.