Maryland Catholics learned earlier this month that the Archdiocese of Baltimore is considering filing for bankruptcy — and could make the decision in a matter of days.

Archbishop William E. Lori said in a Sept. 5 letter to parishioners that an expected wave of claims related to sexual abuse allegedly committed by clergy members in the Baltimore area could land as soon as Oct. 1, when a state law ending the statute of limitations for childhood sex abuse claims takes effect. One way to protect survivors and ensure the longevity of the church, he wrote, would be to file for bankruptcy protection.

The consideration comes about five months after the release of a four-year-long investigative report from the Maryland Attorney General’s office detailing hundreds of sexual abuse allegations perpetrated by clergy members within the Archdiocese of Baltimore over the course of 80 years, as well as instances of cover-up among some of the church’s highest-ranking officials.

Soon after, state lawmakers voted in favor of the bill that lifts age limits and time limits for filing civil lawsuits against institutions, including churches and schools, where an individual suffered sexual abuse as a child. That bill also nullifies a legal protection called a “statute of repose,” which could have insulated institutions from older claims.

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Lori’s letter implies that a bankruptcy filing might appear before the legislation takes effect. Here’s a breakdown of what the archdiocese’s possible bankruptcy proceeding could look like as the date draws nearer.

Does bankruptcy mean the Archdiocese has run out of money?

Filing for Chapter 11 bankruptcy has become a go-to legal defense in the litigation playbook for entities accused of corporate malfeasance and sexual abuse. More than 30 archdioceses and dioceses and at least three religious orders have filed for bankruptcy since the early 2000s, according to a database maintained by the Catholic University of America, and many are clustered in states that have relaxed or eradicated statute of limitation laws.

The strategy also extends beyond religious organizations and includes some high-profile secular institutions, including Boy Scouts of America and USA Gymnastics, which have both faced public scrutiny and litigation over allegations of sexual abuse within their ranks. The gymnastics organization filed for bankruptcy in 2018 and Boy Scouts of America filed in 2020.

In what’s known as a Chapter 11 bankruptcy filing, an entity moves to pay out a portion of its owed debt to claimants — who become creditors — with a goal of eventually restructuring to become solvent and continue operating.

In the Archdiocese of Baltimore’s case, Lori noted that the reorganization process would enable it to divide its gifts and assets into two classes — restricted and unrestricted — to pay out potential claims. For example, donors who contribute money specifically for meals, immigration outreach or tuition assistance would likely not have their donations rerouted, while “unrestricted” gifts and assets — such as money left to a diocese in a will for an unspecified use — would help pay for various costs (though what qualifies as a restricted gift or asset may be challenged in bankruptcy court).

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Oftentimes, a creditors’ committee — typically composed of plaintiffs’ attorneys — in a bankruptcy proceeding will agree to a deadline by which all claimants must submit a claim and an amount that should be reserved for current and future claimants. After the deadline passes, the settlement trust set up on behalf of the parties usually begins paying out what the entity owes.

Another potential goal of bankruptcy proceedings is to release archdioceses, dioceses and parishes from liability in sexual abuse cases, said Devin Storey, a partner at the Zalkin Law Firm P.C. in San Diego who represents survivors of sexual assault.

For instance, the Boy Scouts of America had its plan of reorganization confirmed that includes a release for regional councils and sponsoring organizations, Storey said. Dioceses, he said, could look to obtain the same for parishes, schools and ancillary organizations.

“The discharge at the end of a bankruptcy gives the diocese certainty: The lawsuits are over,” Storey said earlier this year. “It really does provide a vehicle for a clean break from any past liability for sexual abuse,” he later added.

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How does bankruptcy work?

The “automatic stay” of civil litigation goes into effect the same day an entity files for bankruptcy. After that, all people who have sued or who want to sue are invited to file what’s known as a proof-of-claim form, a confidential document with their name, some identification information and basic facts regarding their alleged abuse. An entity will begin advertising its bankruptcy proceeding in an effort to notify as many people as possible of their temporary opportunity to claim compensation for any injury or harm.

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The contents of that proof-of-claim form will then be delivered to the debtor and the creditors’ committee and will be kept anonymous from the public.

Those who miss the so-called “bar date,” or deadline, may still be granted an opportunity to submit a claim in certain circumstances, such as if the person was overseas or serving in the military. And people who want to file a proof-of-claim form can do so on their own or with the help of an attorney.

A bankruptcy case will usually proceed with attorneys for the debtor and the creditors negotiating over the terms of the entity’s plans of reorganization. Typically, a settlement trust is formed independent of the two parties and is funded from contributions from the debtors and any relevant insurance carriers or co-plaintiffs, such as parishes, who have been sued for direct liability for sexual abuse. All claims get channeled into this trust, and once the reorganization plan is confirmed, the trust becomes the entity that handles claims.

Before the Boy Scouts of America filed for bankruptcy, there were several hundred active cases against it. But that number jumped into the tens of thousands once the bankruptcy case began, said Marie T. Reilly, professor of law at Penn State Law, who researches diocesan bankruptcy.

Reilly said plaintiffs’ lawyers typically are frustrated by bankruptcy proceedings even though they can offer some benefits to their clients. For example, Reilly said not every survivor of sexual abuse wants to testify about it in court or confront their abuser, and may be satisfied with having a more private means to access monetary relief.

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She also said bankruptcy settlements tend to be more equitably distributed than what is produced from civil cases or voluntary payouts, especially in states such as Maryland that have ended statute of limitations in sexual abuse cases.

“The way to respond to expected mass tort liability in bankruptcy court is what’s known as ‘batch resolution,’” said Reilly. “I can be sure that the archdiocese would want this bankruptcy case to catch up and provide for as many sex abuse claims as possible, because a final and comprehensive settlement of liability is the reason for filing for bankruptcy in the first place. You don’t want to leave some claims hanging out there.”

Lori, in his letter to parishioners, said litigating each potential lawsuit individually would likely lead to a few high-damage awards for a small number of claimants.

“The Archdiocese simply does not have unlimited resources to satisfy such claims; its assets are indeed finite,” he said in the letter. He said a bankruptcy reorganization would establish a “reasonable and equitable” method for compensating survivors, who he said have “suffered so profoundly from the actions of some ministers of the Church.”

But some have argued that the bankruptcy process harms survivors by denying them access to the civil courts system.

“This would be another triggering event for our clients who have been tortured for the last few decades, and another move by the Archdiocese of Baltimore to deny them their day in court,” said Robert Jenner, managing partner of Jenner Law, a Baltimore County-based firm that is representing survivors of clergy sexual abuse in Maryland. “It further impedes the ability of clients to reach the courts.”

How much is the Archdiocese of Baltimore worth?

While charitable organizations generally have to file statements about their assets and income to the Internal Revenue Service, religious organizations have filing exemptions.

“The normal filings that a corporation would have to file with regard to their assets is going to be different because of the First Amendment right,” said Timothy D. Lytton, Regents’ professor and professor of law at Georgia State University, whose expertise includes clergy sexual abuse cases.

The exemption, he said, can sometimes make it difficult to ascertain precisely what an entity is worth until it is forced to file disclosures as part of the bankruptcy proceeding.

On its website, the Archdiocese of Baltimore reports having around $250 million in total assets, which includes property and equipment, as well as $120 million in total liabilities. It reported having a little over $16 million in its 2022 claims reserve for insurance liabilities, and its net assets without donor restrictions is listed at about $108 million.

As of June 2022, it listed having about $38 million in total operating revenues without donor restrictions, with operating expenses at more than $40 million. Its expenses include Catholic Schools, “priest care” and retired clergy funds, and clergy services and programming.

In 2022, the Archdiocese of Baltimore also gained more than $8 million from the sale of the Seton Keough Property, the school documented in the Netflix series “The Keepers,” according to the combined statement of financial activities. The series chronicled a mysterious disappearance of a Baltimore nun that may have been connected to a yearslong sex abuse scandal at the school. Father Joseph Maskell, who is alleged to have abused at least 39 children and young people during his life, is believed to have abused at least 16 students at Seton Keough, according to the Maryland Attorney General’s investigative report.

Lytton, of Georgia State University, said no diocese or archdiocese that has filed for bankruptcy has “gone under,” with each one working toward consolidating their debts, restructuring and reemerging with a “clean slate.” He said in Boston, for example, where mass litigation was once feared following an investigation into clergy sexual abuse there, the archdiocese had since bounced back and seen donors continue to give.

What should concern archdioceses more, Lytton said, is the loss of social power and capital that can result from sex abuse scandals.

“The National Conference of Bishops ... was one of the most important voices on social and political issues,” Lytton said. “Few people still take note of them as the moral authority voice, even though they still have a fair amount of economic power.”

Lori, in his letter to parishioners, said the Archdiocese of Baltimore has offered voluntary settlements through a mediated settlement program for the last 16 years. Since 2007, the archdiocese has reached 105 settlements worth $6.8 million, spokesman Christian Kendzierski said Monday. He added that survivors’ legal fees have been covered during this mediation and that they have been offered counseling assistance, too.

As part of the consideration of filing for bankruptcy, Lori said he would prioritize the needs of survivors along with the needs of those who depend on the church’s ministries for services. “We do not believe that these goals are mutually exclusive,” he said.

Baltimore Banner reporter Dylan Segelbaum contributed to this report.

hallie.miller@thebaltimorebanner.com