What’s behind the Vermont Catholic Church’s ever-evolving bankruptcy case — and what’s next

Leaders of the Vermont Roman Catholic Diocese said filing for Chapter 11 financial protection in the fall of 2024 promised the church stability amid a rising number of payouts to resolve priest misconduct lawsuits.

So why, two years later, is the state’s largest religious denomination seeking to withdraw its request?

The church’s explanation remains the same: escalating costs — this time, to pay for all the wrangling the Chapter 11 process was supposed to resolve.

“The diocese does not believe it can afford to incur even greater legal bills,” Bishop John McDermott wrote in a recent statement about attorney fees that have hit $2 million and counting.

The church has repeatedly declined to comment further when asked about the case. But as its operating funds continue to dwindle, others in the know are speculating about what’s ahead for its leaders, more than 100 claimants of child sexual abuse and the state’s 100,000 Catholics.

The diocese isn’t the first to enter U.S. Bankruptcy Court and then request to exit, according to Marie Reilly, a retired Penn State law professor who has researched and kept records on the 44 U.S. Catholic entities with Chapter 11 experience. Although most debtors threaten to pull out as a way to pressure creditors to settle, the Vermont church has several incentives to stay.

Ending the proceedings would revive dozens of individual misconduct lawsuits now on pause, the professor said, leading to the church having to defend itself in as many as 120 civil trials. 

The diocese also would lose its chance to ask the bankruptcy court for a “discharge” order that would release the church from future liability for any more past claims — the only way to end such litigation once and for all.

Under federal law, Burlington-based Judge Heather Cooper must weigh “the best interests of creditors” when deciding whether to approve the withdrawal request. Then again, no court facing similar calls by other dioceses has ever granted a dismissal. Instead, they’ve often postponed rulings so all sides could keep negotiating.

Reilly sees a similar possibility in Vermont, since the judge isn’t set to consider the issue until Dec. 8.

“The bankruptcy court scheduled the hearing,” the professor said of the date six weeks from now, “with the hope that the parties will continue to mediate.”

The delay also gives everyone time to decipher all the plot twists. For people with questions, here are some answers.

Why did the Vermont Catholic Church file for Chapter 11 protection?

The statewide diocese asked for help in reorganizing its finances on Sept. 30, 2024, after facing yet another wave of costly lawsuits alleging past clergy misconduct.

The diocese began in 1853 with five priests, 10 parishes and 20,000 members, according to its online history, and grew to highs of 275 priests, 130 parishes and 160,000 members in the baby boom decades after World War II. That success came with a secret: The church hid records for a half-century that showed at least 40 Vermont clergy had faced accusations of sexually abusing children.

Then in 2002, the Boston Globe published an investigation about Massachusetts priest misconduct that was later dramatized in the Academy Award-winning film “Spotlight.” Sparked by similar complaints, the Vermont attorney general’s office reviewed allegations against 10% of the 400 clergymen serving in the Green Mountain State since 1950.

In the end, local and state authorities didn’t charge any priests because the claims found credible were too old to prosecute under criminal statutes of limitations. 

Accusers, however, were free to sue in civil court. The diocese spent more than $30 million to settle nearly 70 cases up to a 2012 state deadline for filing. Then the Vermont Legislature adopted laws in 2019 and 2021 repealing that statute of limitations, leading to a new wave of lawsuits.

By 2024, the diocese reported settlements had drained its monetary holdings by half — to about $35 million — with a rising number of abuse cases yet to be resolved. 

The church filed for Chapter 11 protection that fall, knowing bankruptcy court offered three benefits:

• It placed the plethora of individual civil lawsuits on hold and required accusers to file claims as a single group of creditors, potentially reducing legal costs.
• It presented the diocese a way to develop a financial reorganization plan (although one that requires approval by the court and creditors). 
• And it promised the church the possibility of receiving a bankruptcy court discharge order that would permanently release it from liability for any future claims of past abuse.

So why is the church seeking to change course?

The diocese may have hoped the bankruptcy filing would save time and money, but it’s only eaten up more: specifically, two years that have required the church to pay $2 million for its attorneys and, as stipulated by federal law, counsel for creditors.

It’s also seen the number of abuse claimants increase nearly fourfold from 31 at the start of the process to 119 after the court put out a call in 2025 for anyone else seeking compensation.

In a mediation session last month, the diocese proposed a $29.4 million collective settlement that would average $247,000 per person, according to a court filing.

An official committee representing creditors rejected the offer. It said the diocese’s assets weren’t limited to the $30 million in state-level holdings listed in a recent public financial statement, but also included an estimated $500 million in local parish property and possessions sheltered in trusts since 2006.

Creditors have asked the court for permission to seek the local parish assets. They argue the trusts are illegal under Vermont’s fraudulent deeds law, which bars any move “with intent to avoid a right, debt or duty.” 

On Sept. 27, Judge Cooper told everyone she was ready to consider the trust question. Reilly called that simple notice a “significant win” for abuse claimants because it raised pressure for the diocese to increase its settlement offer and for the parishes to add some of their own money to avoid the risk of losing more.

But the bankruptcy judge can rule on the local trusts only if the larger Chapter 11 case remains in her hands. On Sept. 30 — the second anniversary of the diocese seeking the court’s help — the church filed a motion to end the financial reorganization process, leading to the current state of limbo.

“The diocese played its own big card,” Reilly said.

Not privy to the next hand, the professor has only one conclusion about the future: “We shall see.”

Read the story on VTDigger here: What’s behind the Vermont Catholic Church’s ever-evolving bankruptcy case — and what’s next.

Courtesy of VT Digger