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What happens when a church goes bankrupt

Move by an Oregon diocese will free it from some debt, but brings courts into religious and fiscal affairs.

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When the Roman Catholic archdiocese in Portland, Ore., declared bankruptcy this week, it began a new phase in the church's effort to put the sexual abuse scandal behind it. Other dioceses - finding themselves with not enough financial assets to settle the legal claims of the victims - may well follow suit.

But beyond the millions of dollars and hundreds of claims involved, this latest chapter in a story of sexual abuse and coverup could also open the church to greater scrutiny of its finances, facilities, and programs around the country, experts say. More significantly, it could eventually involve federal courts in the weighing of important church-state issues, as well as the authority of centuries-old canon law.

"No bishop has wanted to declare bankruptcy," says the Rev. Thomas Reese, editor of America magazine, a Catholic weekly published in New York. "But sooner or later, with jury awards mounting up, we would get a situation where the judgment was bigger than the assets of the diocese."

In fact, that's already happened in Dallas, where a jury awarded $120 million to victims of an abusive priest. In that case, the plaintiffs (former altar boys) reportedly settled for about $30 million rather than force the church into what probably would have been a lengthy bankruptcy.

Trying to keep operations going

Here in Oregon, Archbishop John Vlazny expressed "profound apologies to those who have been harmed by abuse." But in a letter this week, Archbishop Vlazny also said that faced with "great financial risk," seeking bankruptcy would be the only "prudent" step to allow parishes and schools to continue operating.

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