Diocesan bankruptcies could require Vatican approval, Vatican official reminds bishops

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The Vatican has written to the president of the U.S. bishops' conference, to remind dioceses that filing for bankruptcy could require the consent of the Holy See.

A June 15 letter from Cardinal Beniamino Stella, prefect of the Congregation for Clergy, to Archbishop Jose Gomez of Los Angeles notes that "In recent months, the Congregation has received news of the declaration of bankruptcy by several diocesan bishops of the United States" acting on behalf of their dioceses.

Declarations of bankruptcy, the letter said, require Vatican permission, "whenever it is foreseen that the legal proceedings could involve the alienation of temporal goods whose value exceeds" a threshold set by the U.S. bishops' conference in 2011.

That threshold value is $7.5 million for dioceses with more than 500,000 Catholics, and $3.5 million for dioceses smaller than that.

The Code of Canon Law explains that "the permission of the Holy See is required" for "any transaction which can worsen the patrimonial condition of a juridic person" when the value of that transaction exceeds the amount set by each national bishops' conference.

"In most of these cases, the permission of the Holy See was sought, in conformity with the prescripts of law," Stella wrote. "In some, however, the necessary permission was not requested."

"Therefore," Stella said, "I would ask [Archbishop Gomez, as head of the USCCB] to kindly remind the Most Reverend Ordinaries of the United States" that filing for bankruptcy often requires prior Vatican approval.

The letter from Cardinal Stella raises the prospect that some bankruptcy proceedings could be canonically invalid. Canon 1296 provides that "Whenever ecclesiastical goods are alienated without the required canonical formalities but the alienation is valid civilly, it is for the competent authority, after having considered everything thoroughly, to decide whether and what type of action, namely, personal or real, is to be instituted by whom and against whom in order to vindicate the rights of the Church."

The competent authority in these cases is the Congregation for Clergy. In its letter, the congregation did not specify which dioceses did not seek the required approval for a declaration of bankruptcy, or how dioceses that have not done so will be required to proceed.

Several dioceses in the United States have declared bankruptcy in the last year, several doing so after states passed laws opening a window in the statue of limitations for historical instances of sexual abuse.

In New York last year, a window opened allowing victims to file criminal and civil claims for instances of child sexual abuse. Over 400 lawsuits were filed in New York state on the first day. The dioceses of Buffalo and Rochester have both since filed for bankruptcy.

Other dioceses and archdioceses, including St. Cloud and Winona-Rochester in Minnesota, Harrisburg in Pennsylvania, and Santa Fe in New Mexico, have either announced they would declare bankruptcy or have started the bankruptcy process.

The USCCB, like all bishops' conferences, is empowered by canon law to establish certain binding norms regarding financial administration, in addition to setting national policy regarding such matters as the age for confirmation and clerical garb. 

U.S. norms establish that for some acts of administration, the finance council of a particular diocese, along with a body of priests called the college of consultors, must give their consent before a bishop can act. Those acts include reaching a financial settlement for litigation beyond certain financial thresholds, issuing bonds or acquiring debt beyond those limits, undertaking a business not related to the mission of the Church, or entering a transaction involving a conflict of interest.

Other transactions require Vatican approval.

Decisions by diocesan bishops to alienate or lease property above the maximum amount set by the USCCB are frequently forwarded to Rome for approval, including, in some instances, the sale of real estate or other Church assets, including that of a single church building.

Bankruptcy proceedings undertaken by dioceses in the face of large numbers of lawsuits or other possible claims on diocesan funds and assets could result, in some cases, in large settlement agreements which entail the permanent loss of Church property or assets.

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