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Church districts file bankruptcy to mediate injury settlements

A business or non-profit entity that is burdened with personal injury litigation may find it critically helpful to file a Chapter 11 bankruptcy in order to compensate victims and put an end to future litigation. This has proved particularly applicable to the situation of the local churches affiliated with the Roman Catholic Church, where a local diocese may be able to settle and resolve all of its claims generally in one fell swoop. The use of mediation in a bankruptcy proceeding may generally bring all of the victims to separate settlement tables and provide a convenient and final arbiter of numerous personal injury claims. This remedy can apply in Pennsylvania as well as all other bankruptcy jurisdictions.

The crisis of the many sexual abuse claims afflicting the Roman Catholic churches nationwide has not yet subsided. Cases are still being filed and have brought some church entities to total financial ruination. At some point in the harrowing annals of these litigation cases, churches discovered that having a central mechanism for promoting settlements and distributing available resources was a critical help to the future survival of the diocese.

Although victims may not always obtain settlements comparable to the whopping verdicts awarded by juries in civil lawsuits, this method of a central mediation administration for all claims has proved to be a fair way of distributing limited resources in a timely manner. Therefore, the bankruptcy remedy allowed the diocese to survive financially under Chapter 11 principles of making assets available to all creditors of a like class. This is intended to provide funding to all victims who come forward with credible claims.

There are reportedly about 15 local Catholic churches nationally that have filed for bankruptcy protection. In general, the use of the Bankruptcy Code to resolve these cases demonstrates the versatility and flexibility of the bankruptcy remedy for a wide variety of entities and purposes. Due to the expanded, liberalized statutes of limitations passed in most states with respect to sexual abuse, more bankruptcy filings by Catholic churches, including in Pennsylvania, can be reasonably expected.

Source: wsj.com, "Duluth Diocese to Enter Mediation With Abuse Victims", Tom Corrigan, Dec. 11

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