Unclear bankruptcy rules challenge Catholics and Disciples

Nonprofit status may help determine legal precedents
The nonprofit status of the Catholic Archdiocese of Portland, Oregon, which filed for bankruptcy last month, and the Protestant-affiliated National Benevolent Association, which filed for protection in February, may help determine legal precedents for church bodies that say they are unable to meet their financial obligations.

The vast majority of organizations that file for bankruptcy protection are for-profit companies. Statutes and abundant case law set clear priorities for the court as it straightens out companies’ finances: creditors come first, shareholders second.

Nonprofits are different in several important ways—not the least because such filings have been relatively rare. Also, nonprofits don’t have shareholders. They are exempted from taxes in exchange for meeting a mission such as housing the poor or, in the archdiocese’s case, operating a church.

 

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