PORTLAND, Ore. — It will likely be more than two years before the assets and operation of the Archdiocese of Portland, Ore., are back in the hands of the archbishop. And parishes and schools might not long remain aloof from the upheaval.

Struggling under the burden of $53 million in legal settlements from sexual-abuse lawsuits with a potential for $155 million more, the archdiocese became the first diocese in U.S. history to seek protection from its creditors under Chapter 11 of the federal bankruptcy code. It might not be the last.

The archdiocese announced the decision to file for reorganization in a July 6 announcement. In it, Archbishop John Vlazny said bankruptcy was the “just and prudent” choice under the circumstances.

“This action offers the best possibility for the archdiocese to resolve fairly all pending claims, to manage the difficult financial situation and to preserve the ability of the archdiocese to fulfill its mission,” he said.

Archbishop Vlazny rejected claims by plaintiffs' attorneys that bankruptcy offered a way out of embarrassing trials, set to begin the same day as the filing.

“We have worked diligently to settle claims of clergy misconduct,” he said. “In the last four years, we have settled more than 100 such claims. Last year alone, the archdiocese paid almost $21 million from its own funds.”

He said the size of the last two claims, seeking $130 million and $25 million, made it impossible to continue.

“I am committed to just compensation,” he said, “but these demands go beyond compensation, and with 60 other claims pending, I cannot in justice and prudence pay the demands of these two plaintiffs.”

The archbishop told reporters the archdiocese had been “abandoned” by insurers and said he hopes the bankruptcy filing will bring the companies back.

Commenting on the decision, archdiocese spokesman Bud Bunce admitted the bankruptcy filing puts them in uncharted territory, “but we fully expect that our parishes will continue their day-to-day function, just as they have been.”

However, in seeking protection from the federal bankruptcy court, Archbishop Vlazny has initiated a process where neither he nor the plaintiffs will be able to exert control over the outcome, said attorney Steven Cox, a licensed bankruptcy attorney who has been following the events in Portland and the parallel path of the Diocese of Tucson, Ariz., which might also be in receivership by the middle of September.

Like Asbestos Suits

Events will most likely resemble the reorganization of several major corporations as a result of asbestos litigation starting in the 1970s. A federal bankruptcy judge will direct the process, with broad discretionary power to do whatever he feels is prudent to serve the interests of the diocese and its creditors.

The first several months, Cox said, will be consumed by a process of assembling a complete list of claims against the diocese. Next will be a catalog of diocesan assets.

“The court will try to retain core assets, sometimes with an agreement for payment in the future,” Cox said. Then assets will be disbursed to satisfy all the outstanding claims.

He predicted the archdiocese will come out much as it is now, “although considerably pared down.”

As for the guarantee that parish assets will not be included in the bankruptcy settlement, Cox called that a “gray area.”

“Much will depend on whether the diocese has followed the technicalities of the separate organization rules,” he said.

The archdiocese would have to demonstrate that it exercised no financial or operational control over the parishes. Cox said the fact that pastors are appointed by the diocese, paid by the diocese and granted subsidiary right to manage their own parishes by the diocese “will certainly muddy the waters and will be something the lawyers will be debating.”

Ultimately, he said, it could come down to whether the bankruptcy judge wants to consider parishes a wholly owned subsidiary of the diocese.

“It's an all-or-nothing decision, and the consequences would be so severe that any judge would be hesitant to do it,” Cox said.

This is something the Tucson Diocese is depending on as it evaluates reorganization as an option prior to the beginning of its own civil court case Sept. 15. Bishop Gerald Kicanas, among others, is watching the Portland proceedings with interest.

However, in his July 6 “Monday Memo,” a weekly Web posting for the faithful in the diocese, Bishop Kicanas attempted to calm fears.

“There are many concerns about what Chapter 11 reorganization means,” he said. “Would it mean the liquidation of the diocese and the closing down of our parishes and schools? No. On the contrary, Chapter 11 reorganization is a way our government provides for an organization to continue its work while responding to its creditors.”

“I am confident,” he added, “that the work of our parishes and schools will continue under reorganization and that the assets of our parishes and schools are not the assets of the diocese. If this is challenged, it will need to be taken all the way to the U.S. Supreme Court for resolution.”

“Many of those who don't go to church don't understand that, for most of us, the parish is the Church,” diocese spokesman Fred Allison said. “For the most part, all of the sacraments we celebrate are at the parish. The parishioners pay to construct the parish church and their weekly contributions pay for the upkeep and staff. This is not the diocese's parish church. It's our church.”

“Talk to the average parishioner about the bankruptcy proceedings and they don't really understand,” Allison continued. “But say to them that the plaintiffs' attorneys believe that the tabernacle, altar stone, vestments and chalice belong to the diocese and should be considered assets to be incorporated into the bankruptcy settlement and they'll get the picture.”

Philip S. Moore writes from Vail, Arizona.