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When survivors of clergy or institutional sexual abuse come forward in large numbers, institutions such as dioceses, churches, and schools sometimes respond by filing for bankruptcy. Bankruptcy consolidates claims into one process. However, a bankruptcy proceeding also brings in other players who have their own financial interests.
One group that can influence or even complicate survivor settlements is bondholders. Understanding who bondholders are and how they fit into a bankruptcy case can help survivors make sense of why settlements sometimes face unexpected delays or objections.
What Is a Bondholder?
It’s an investor who has lent money to an organization—whether a diocese, university, or other entity—by purchasing bonds. The institution issues these bonds to raise funds, promising to pay interest and eventually repay the principal. For example, a diocese might issue $10 million in bonds promising to pay investors 3% interest each year and repay the full $10 million after 10 years.
If the diocese later files for bankruptcy, those promises can’t always be kept. The church may suspend interest payments or default entirely, leaving bondholders unpaid. In that situation, bondholders become creditors in the bankruptcy, competing with other groups—including abuse survivors—for a share of the remaining assets.
Bondholders, then become creditors who expect repayment. They join a long line of others seeking compensation. In addition to survivors of abuse, insurers, employees, vendors, and sometimes even pension funds will seek financial redress.
Secured vs. Unsecured Creditors
Creditors fall into two main categories:
Secured Creditors
They have collateral backing their loan, such as buildings, land, or investments. They are legally entitled to repayment first, up to the value of the asset they hold as security. For example, if a diocese borrows $5 million from a bank and pledges a church property valued at $3 million as collateral, the bank is a secured creditor up to $3 million. If the diocese goes bankrupt and the property is sold for $3 million, the bank gets that amount. The remaining $2 million becomes unsecured debt, competing with other creditors—like bondholders or survivors—for whatever funds remain.
Unsecured creditors
Examples of unsecured creditors are bondholders, vendors, contractors, law firms, or even abuse survivors. Unsecured creditors don’t have any collateral guaranteeing payment; they’re simply owed money.. They depend on the debtor’s overall finances and often recover only a small percentage of what they are owed once secured creditors and higher-priority claims are paid. Most bondholders in diocesan bankruptcies fall into this group, which means their recovery depends entirely on the overall settlement structure.
To illustrate an example, imagine a diocese that owes:
- $3 million to a bank, secured by church real estate
- $500,000 to a construction company that renovated parish buildings
- $200,000 in unpaid legal fees
- and $100 million in abuse claims from survivors
If the diocese files for bankruptcy and sells its assets for $10 million, the bank (a secured creditor) is repaid first from the property sale, up to the property’s value. The construction company, law firm, and survivors are unsecured creditors; they must divide whatever remains, often receiving only a small percentage of what they’re owed.
How Bondholders Can Affect Sexual Abuse Settlements
Even though bondholders are not connected to abuse claims, they sometimes wield significant leverage because bankruptcy law gives every creditor class the right to approve—or object to—the reorganization plan.
Bondholders can:
- Challenge asset valuations
They may argue that church property or investments are undervalued, claiming the debtor has more money available to pay all creditors—including them. - Claim unfair treatment
They can allege that a plan favors survivors too heavily at their expense or that the process was negotiated “in bad faith.” - Block or delay plan confirmation
Bankruptcy courts require approval from two-thirds of each creditor class. If bondholders vote “no,” the plan can be held up until the court decides whether to impose it through a legal process called a “cramdown.” - Use litigation for leverage
They may demand depositions of church leaders or financial advisors, forcing institutions to disclose more information about their assets and settlements.
The Archdiocese of New Orleans Example
The Archdiocese of New Orleans provides one of the clearest modern examples of how bondholders can influence survivor settlements. The Archdiocese filed for bankruptcy in 2020 amid hundreds of clergy abuse claims.
As the church and survivor committees worked toward a $180 million settlement, bondholders—who are owed nearly $30 million—objected that they were being offered only 10 percent of what they’re owed. They accused the Archdiocese of securities fraud, claiming it misled investors about its financial health and ability to pay debts.
The dispute has grown so tense that bondholders have questioned Archbishop Gregory Aymond and top financial officers under oath and may attempt to block the settlement’s final approval. Their objection forces the court to determine whether the plan is “fair and equitable” under bankruptcy law. This could delay closure for hundreds of survivors waiting for compensation.
If the plan moves forward despite their objections, it would be the first known “cramdown” in a Catholic bankruptcy where a group of non-abuse unsecured creditors (bondholders) were compelled to accept a plan centered around survivor restitution.
Why Bondholders Sometimes Object
Bondholders typically invest for stable, predictable returns. When an institution’s bankruptcy suddenly prioritizes abuse survivors, who are legally recognized as victims of ‘tortious harm’ in legal parlance, bondholders may see their investments wiped out or drastically reduced.
While their financial frustration is understandable from an investment perspective, it can create moral and legal tension. Survivors and their advocates often argue that institutional accountability should take precedence over bondholder profits. Courts must balance these competing interests while ensuring the process meets federal bankruptcy standards.
Have Bondholders Been a Factor in Other Settlements?
In most church or youth-organization bankruptcies, insurers—not bondholders—have been the dominant source of friction. However, the New Orleans case may set a precedent. Experts in church bankruptcy law note that as more dioceses issue debt to fund operations, future abuse settlements could see similar disputes between survivor committees and bondholder groups.
What Survivors Should Take Away
- Bondholder objections rarely erase survivor settlements
They may delay approval but typically lead to greater transparency about an institution’s assets. - A “cramdown” can still protect survivors
Courts can approve a plan over bondholder objections if it’s found to be fair, equitable, and proposed in good faith. - Financial complexity does not reduce survivor rights
While bondholders and insurers may argue over percentages, survivors’ claims are rooted in human harm, not financial speculation. - Experienced legal counsel matters
Attorneys representing survivors understand how to navigate competing creditor interests and ensure that abuse claims remain central to the process.
The Bigger Picture
Every abuse-related bankruptcy reveals how deeply intertwined faith, finance, and accountability can become. Bondholders may view the institution as a debtor; survivors view it as a system that failed to protect them.
Understanding who the financial players are and how they influence outcomes helps survivors and advocates stay informed, persistent, and empowered in pursuing justice.
If you are a sexual abuse survivor, justice and financial compensation are still possible, even if the abuse happened decades ago. To have your case evaluated at no cost, fill out the secure, confidential form below.