11 Bankruptcy Is 'Prepackaged'
By David Wichner
September 21, 2004
The Roman Catholic Diocese of Tucson filed a "prepackaged" Chapter 11 bankruptcy Monday, laying out a specific plan to pay off its debts in hopes of getting out of court as quickly as possible.
But the diocese faces at least months of legal wrangling over its finances and claims involving alleged sexual abuse by priests before it emerges from bankruptcy.
Besides filing its initial Chapter 11 bankruptcy petition Monday, the diocese filed its plan of reorganization and disclosure statement - documents that lay out its plan to repay creditors and solicit their vote.
"The whole purpose of a prepackaged filing is to get in and out of bankruptcy as quickly as possible," said Jim Cross, a Phoenix attorney who chairs a commission on bankruptcy for the State Bar of Arizona's Board of Legal Specialization.
"It saves money and avoids the stigma of bankruptcy."
A Financial Management Association study in 1995 showed companies that filed prepackaged Chapter 11 cases spent an average of 2.5 months from bankruptcy filing to plan confirmation, compared with more than two years for those who filed without a prepackaged plan.
But in many such cases, debts and assets are known quantities, and creditors sometimes have signed off on a prepackaged reorganization plan before a debtor files it, Cross said.
That isn't the case with the Tucson diocese, which has pointed to the unknown cost of current and potential lawsuits filed by alleged sex-abuse victims as a major reason for its bankruptcy filing.
"The other dynamic that's been hanging over this entire process is the need to be fair to both current and future claim-ants," said Rob Charles, a Tucson attorney representing the Catholic Foundation for the Diocese of Tucson.
The prepackaged bankruptcy filing - case No. 4-04-04721 - also won't save the diocese from having to divulge its financial details.
Among the diocese's initial filings Monday was a financial statement from the fiscal year ended July 31 and schedules of its assets and liabilities.
But the diocese has listed many debts as unknown and has asked to keep some key information secret.
In a motion also filed Monday, the diocese asked that it be allowed to file portions of its liability schedules and other pleadings under court seal, to keep the names of sex-abuse plaintiffs confidential.
Such requests are not uncommon, but that will be up to the bankruptcy judge assigned to the case, Judge James M. Marlar, to decide, among several initial legal issues, Cross said.
Other motions filed Monday have to do with the ensuring the day-to-day operations of the diocese, including requests for permission to pay employees for sick time and vacation.
In the coming days and weeks, a committee may be appointed to represent unsecured creditors, those who do not hold liens or other security against their debts.
An initial meeting of creditors has been set for Dec. 2.
Contact David Wichner at 573-4181 or firstname.lastname@example.org.
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