Delaware Catholic Diocese Must Face Bankruptcy Trial (update1)

By Steven Church
January 12, 2010

Jan. 12 (Bloomberg) -- Delaware’s Roman Catholic churches may be forced to share $76 million with victims of sexual abuse, depending on a ruling by the judge overseeing the bankruptcy of the Catholic Diocese of Wilmington.

U.S. Bankruptcy Judge Christopher Sontchi today ordered a trial to take place in June on whether diocese officials can shield the $76 million from creditors. The biggest creditors are men who claim they were sexually abused as boys by Catholic priests in Delaware.

Sontchi, in a hearing in Wilmington, Delaware, called the debate over the $76 million a “gateway issue” that must be decided before the diocese can develop a reorganization plan and exit bankruptcy. Attorneys for both sides said Sontchi’s ruling will affect how much money the diocese has to pay creditors.

“This is the key question in the case,” Robert Brady, a bankruptcy attorney for the diocese, said in an interview. “It will decide what goes into the pot.”

Diocese officials say the money belongs to individual parishes and other organizations that aren’t in bankruptcy, such as Catholic Charities. They say the money can’t be claimed by abuse victims or other creditors. That argument will be challenged in June by the main panel of creditors, made up mostly of abuse victims.

The diocese filed a Chapter 11 bankruptcy on Oct. 18 with plans to settle the lawsuits filed by current and former parishioners who said they were sexually molested by priests. Chapter 11 of the U.S. Bankruptcy Code is typically used by companies that plan to continue operations after reducing debt and reorganizing operations.

Lawsuits Halted

After the filing, 78 of the lawsuits against the diocese, led by Bishop W. Francis Malooly, were halted automatically by the bankruptcy.

More than 130 lawsuits have been filed against the diocese or Catholic religious orders in Delaware. Those lawsuits involve about 25 priests accused of sexually assaulting more than 140 children during the past five decades.

The Wilmington diocese’s bankruptcy followed cases in Fairbanks, Alaska; Portland, Oregon; Spokane, Washington; Davenport, Iowa; and Tucson, Arizona. A Jesuit religious order in Oregon also filed for bankruptcy court protection.

San Diego, Fairbanks

In 2007, San Diego’s Catholic diocese agreed to pay $198 million to settle 144 abuse claims.

The Catholic diocese in Fairbanks offered victims and other creditors about $11 million as part of its bankruptcy, according to the diocese’s Web site.

In the bankruptcy cases that ended, victims were paid, on average, from $300,000 to as much as $1.3 million each, according to James Stang, an attorney for creditors. Stang represents creditors and victims in Delaware and at least two other Catholic bankruptcies.

The case is In re Catholic Diocese of Wilmington Inc., 09-13560, U.S. Bankruptcy Court, District of Delaware, (Wilmington).

To contact the reporters on this story: Steven Church in Wilmington, Delaware at


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