By Sam Douglass

Two years after filing for Chapter 11 bankruptcy protection, the Roman Catholic Diocese of Burlington is pulling out of the reorganization process, citing mounting legal costs, prolonged negotiations, and the lack of a settlement and outcome for claimants who have accused Catholic clergy of sexual abuse. Since filing two years ago, the Vermont Catholic Church’s bankruptcy has developed into multiple overlapping legal battles that could have ramifications across the state for the church’s faithful.

In a statement issued Wednesday, Bishop John McDermott announced that the diocese has filed a motion seeking to exit Chapter 11 with the intention to have a hearing near the end of 2026. He said he hopes the additional time will allow the diocese and the committee representing claimants to continue negotiations and reach a settlement. The hearing is scheduled for December 8.

According to its filing, the diocese didn’t take this decision lightly, but two years of failed negotiations leaves the organization little choice. 

“Notwithstanding the Diocese’s good-faith efforts, this case has unfortunately failed to produce a viable path toward a consensual plan of reorganization that compensates Survivors and enables the Diocese to continue its mission. Mediation and arm’s-length negotiations failed to yield the compromises necessary to achieve the global resolution that chapter 11 is intended to facilitate,” states court filings.

Court documents show that the diocese engaged in multiple mediation sessions over the last two years. This resulted in the diocese offering nearly $30 million in settlement, which was declined by the claimants. This would’ve nearly doubled the amount paid by the diocese in settlements so far, as it has paid roughly $35 million to settle previous misconduct lawsuits.

Over the last two years, the diocese has taken steps to raise money and reduce expenses. It sold its former South Burlington headquarters for about $3.13 million and a former senior-living facility in Rutland, the Loretto Home, for $1 million. McDermott said the diocese has also cut its employee base by half and reduced expenditures while seeking to sell additional properties to fund a trust for claimants. 

McDermott made the cost of litigation a central reason for his decision to seek an exit from Chapter 11. As of Wednesday, the diocese has paid about $1.25 million in professional fees and still owes about $1.87 million, including $698,305 in professional fees and $1,174,665 for claimant professional fees. 

“In fact, our legal and administrative expenses are well more than two million dollars, and not one dollar of these funds has been given to a single claimant,” wrote McDermott in his statement.

The decision to withdraw from bankruptcy occurs alongside a separate fight over whether parish assets can be used to pay the diocese’s creditors. The assets at issue include property and other holdings, from the Northeast Kingdom to Bennington, that the diocese placed into individual parish trusts in 2006. Abuse claimants have estimated the combined value of the parish properties at as much as $500 million. The dispute has become a mounting issue in the bankruptcy case, with claimants seeking access to the broader pool of Catholic assets across the state when determining compensation.

This question generated a separate federal lawsuit from seven Vermont parishes which argue that they cannot legally be held responsible for abuse committed by clergy that the parishes had no authority in placing. The lawsuit argues that by bringing suit against parish property, it threatens constitutionality and potentially makes individual parishioners responsible for damages. 

McDermott said the diocese cannot afford to continue accumulating legal expenses while the case remains unresolved. “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 said.