To Shield Its Parishes, Vermont Diocese Wants to Pull Its Bankruptcy Filing

Facing a ruling that could expose its local parishes and schools to liability, no progress in settlement talks, and rising litigation costs, the Roman Catholic Diocese of Burlington, Vermont has taken the unusual step of asking the U.S. bankruptcy court to dismiss its Chapter 11 case that it filed two years ago to deal with clergy sexual abuse claims. The surprise move came just days after the church’s $29.4 million settlement offer was rejected by the Committee of Unsecured Creditors that represents 120 claimants. When it made the offer, which amounts to $247,000 per person, the diocese told the committee that it was the “highest and best offer” the diocese and the other Catholic entities could make. The diocese further indicated that portions of the proposal were contingent on reaching a resolution now and would not exist in the future. The dismissal motion also came right after a development of even bigger concern: the bankruptcy judge’s ruling that survivors may proceed with a lawsuit to determine whether they’re entitled to tap into an estimated $500 million in assets held by parishes and schools. The diocese had placed these in trusts in 2006 to shield them from liability. Vermont Diocese Files for Bankruptcy With No Insurance Left for Past Abuse Claims The move reflects the diocese’s fear that it could lose that case about the trusts and those local assets in 66 parishes could end up being liquidated by the bankruptcy judge and made available to survivors. If the bankruptcy case is dismissed, the committee’s lawsuit over the trusts would not go forward and the trusts would remain intact, at least until challenged outside of the bankruptcy court in individual state court lawsuits. The church is betting that it will be better off litigating and negotiating individual survivor lawsuits in state courts rather than continuing to pursue a global settlement with the committee that could expose the trusts. Legal Fees Bishop John J. McDermott told the bankruptcy court that the diocese wants its Chapter 11 case dismissed because “does not believe continued mediation in this case will be productive or successful.” He pointed to the two years and $2 million in legal and professional fees it has already spent and the additional time and money it will likely take to resolve the issues involving the trusts. “The Diocese should not be required to continue hemorrhaging estate resources in a case that has no realistic prospect of producing a confirmable plan,” the diocese stated in its filing. “In short, the only party that benefits from the continued administration of this case are the professionals of the estate—not the Survivors, not the other creditors, and not the Diocese.” The claimants’ committee has criticized the church’s move for dismissal as a “bad faith” maneuver to hide hundreds of millions in assets. Abuse Claimants Allowed to Sue for Parish Assets in Vermont Catholic Bankruptcy Case “Two years ago, the diocese avoided accountability on the eve of my trial and said bankruptcy was necessary for survivors to be treated fairly,” said Daniel Stack, chair of the committee. “Three days after a federal judge refused to let the diocese and its parishes shut down the very case that could expose how it moved hundreds of millions of dollars out of survivors’ reach, the diocese wants to leave the process altogether. That is not the conduct of an institution acting in good faith, it is a second attempt to avoid accountability.” 2024 Filing The diocese initiated the bankruptcy process in 2024 in an attempt to both halt additional lawsuits and bring about a global settlement for 120 sex abuse claims, without exposing the assets of the schools and parishes. In a pastoral letter issued at the time of the Chapter 11 filing, Bishop McDermott said he believed bankruptcy was “the only way to establish a process by which victims’ claims are treated in an equitable way.” In 2019, the state eliminated the statute of limitations for child sex abuse claims, raising the likelihood the church would see additional claims. But well before that, the diocese had already spent roughly $34 million settling 67 abuse lawsuits over nearly two decades. No Insurance Left Part of the church’s financial bind is due to the fact it has little or no insurance left to contribute to a settlement fund. In 2013, in order to pay another $6.75 million in claims, the diocese negotiated “insurance buyback” agreement. In that deal, the diocese signed away future claims to insurance coverage for clergy sexual abuse allegations occurring in the 1970s. When it filed for bankruptcy in September 2024, the diocese reported total assets of $30 million to $35 million. In the bankruptcy affidavit regarding dismissal, McDermott stated that the diocese had “very limited unrestricted diocesan funds, little diocesan property to sell, and likely no insurance coverage to help toward these settlements.” The diocese has sold several properties to build its settlement fund. While it already cashed in on most of its insurance in 2013, with the aid of an insurance archeologist, the diocese said it has uncovered five policies that might contribute. But it expects that any ultimate resolution with these late-surfacing insurers will require significant administrative expenses and take a long time. Bankruptcy Judge In the case challenging the trusts, U.S. Bankruptcy Judge Heather Z. Cooper commented that “more clarity about the rights of the parties and what constitutes estate property” could help parties each a global settlement. However, Cooper acknowledged that achieving more clarity would come at the cost of more litigation. She also warned that “its cost may eventually outweigh the benefit if no settlement is reached.” McDermott said this adversarial procedure against the parishes will “almost certainly” result in significantly more delays and legal fees. “Because of the likelihood of ever-increasing legal costs and the amount of time required to complete the litigation, the Diocese does not believe it can afford to incur even greater legal bills, while continuing to delay and reduce compensation available for claimants,” he told the court. The claimants question the church’s claim that its decision to seek dismissal is because of mounting legal costs, maintaining that these expenses are the product of decisions the diocese and the parishes made including suing the committee. “The Diocese is not being forced to litigate. It is choosing to litigate every issue the hard way and then blaming the bill on everyone else,” said Brittany Michael, partner at Pachulski Stang Ziehl & Jones LLP and counsel for the committee. “Survivors did not create this cost. The diocese’s own litigation strategy did.” The bankruptcy court has scheduled a hearing for December 8, 2026, to decide whether the diocese is even allowed to walk away.