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Last Updated: Wednesday, 7 July, 2004, 16:11 GMT 17:11 UK
Q&A: Archdiocese bankruptcy
Archbishop John Vlazny announces that Portland has become the first archdiocese to declare bankruptcy
The Portland Archdiocese made history with its declaration
The Archdiocese of Portland, Oregon, has become the first to file for bankruptcy in the face of lawsuits claiming its priests abused children.

BBC News Online explains what the decision means and why the church made it.

What is bankruptcy?

In the United States, a corporation that cannot pay its creditors can declare itself bankrupt under part of a US law known as Chapter 11. The corporation is then protected from having to pay its debts while it puts its financial house in order. A court appoints an outside figure who has the final say over the debtor's major financial decisions.

Has an archdiocese ever declared bankruptcy before?

No, Portland is the first. The Boston Archdiocese considered it two years ago, and in the 1990s, the Archdiocese of Santa Fe, New Mexico, was pushed to the verge of bankruptcy. In the end, the Santa Fe Archdiocese borrowed from parish savings accounts rather than file for Chapter 11 protection.

There has been a stigma attached to the idea of declaring bankruptcy, Chuck Zech, an expert in church finances, told the BBC's World Today programme.

Now that a diocese has done it, he said, more may follow. The diocese of Tucson, Arizona, is expected to make a decision soon about whether or not to declare itself bankrupt.

What are the advantages to declaring Chapter 11?

It gives the archdiocese some breathing room. Like many American diocese, the Archdiocese of Portland faces hefty claims from people who say they were abused by priests - running well into the tens of millions of dollars.

The archdiocese and its insurers have already paid out more than $53m to settle more than 130 claims, the Associated Press reported, and still faces at least 20 more lawsuits alleging abuse by priests.

If the archdiocese were to lose those cases in court, it could be forced to sell off property immediately - among other actions - to cover its costs.

But if it is under Chapter 11 protection, the church can come to an agreement with the court about when and how to pay its debts. For example, it could wait to sell property until prices are high.

"This gives them some time now to make arrangements... more on their timetable than the court's timetable," Mr Zech said.

Can the archdiocese get out of paying debts completely by filing for bankruptcy protection?

No. At some point, it will have to pay something to its creditors - in this case, the plaintiffs who are suing over abuse claims.

But it may be able to offer smaller settlements than plaintiffs would like if it can convince the courts it cannot afford to pay more.

The court makes the final decision about what a bankrupt corporation can pay.

Are there disadvantages to declaring bankruptcy protection?

It means the archdiocese loses control over its financial affairs - and enters completely uncharted legal waters.

The US Constitution guarantees separation of church and state, but by filing for Chapter 11, a church institution puts itself under civil - rather than canon - law.

That means a court could theoretically dismiss an archbishop, for example.

The declaration also means the archdiocese must open its financial records to the court's scrutiny.

Under church law, a diocese needs the Vatican's permission to file for bankruptcy - but the massive lawsuits many parishes face could make that point academic, the Reverend Thomas Reese said.

"If you don't have any money, it really doesn't matter what the Vatican thinks," Mr Reese, the editor of the Jesuit magazine America, told AP.

"Either the creditors will take you to court or you declare bankruptcy."

How have claimants responded to the archdiocese's move?

Not well. They claim that the church does have the assets to pay their claims, and that the bankruptcy filing is a sham.

"The Vatican needs to sell a few paintings if they think they can't afford to pay for this," Bill Crane of the Survivors Network - a group for people who say they were abused by priests - told AP.

Prof Zech, the church finance expert, said some claimants feared the filing was "an intimidation tactic".

"If the archdiocese is bankrupt, any future settlements will be smaller," he said, adding that some claimants might feel they would do better by accepting out-of-court settlements than by risking pushing an archdiocese into bankruptcy.

The BBC's David Willis
"Filing for bankruptcy lifts the imminent threat of additional lawsuits"

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