On the eve of the deposition of Milwaukee Bishop Richard Sklba  the Archdiocese of Milwaukee filed a Chapter 11 Bankruptcy petition.  Like many of the other divisions of the Catholic Church who have been defending numerous child sex abuse cases, the church released a statement saying that the filing was necessary to reduce the significant legal fees incurred in defending the cases and to allow the church to operate on a solid financial footing.

In the past many businesses have used a Chapter 11 filing to manage litigation of one sort or another.  Immediately upon filing the petitions all matters are put on “hold” by the automatic injunction, referred to as the Automatic Stay.  Any further proceedings occur only after the bankruptcy court has entered an order permitting the action to move forward.  This gives much leverage to a business owner who is being out spent by its opponent.

In the case of this Archdiocese it has already spend approximately $29 Million to defend the over approximately 200 cases filed against it.    It is not clear whether the claims are covered by insurance that is normally carried.  There are sometimes exclusions of coverage for intentional crimes, like sex abuse by a priest.

A Chapter 11 Bankruptcy can often be used to get “breathing room” from the pressure of creditors seeking payments on matured indebtedness.  Under a Plan of Reorganization matured debt can often be re-amortized and paid over time.  A Chapter 11 Bankruptcy, although not desirable for most business owners, is often the right tool in difficult circumstances.  No doubt the Archdiocese of Milwaukee is in difficult circumstances.

One of the biggest errors business owners make is not seeking the advice of an experienced bankruptcy attorney earlier in the process.  If you begin evaluation and planning, guided by counsel, early in the process you are more likely to achieve a favorable restructuring of a difficult situation.