A financial panel of the Boston Archdiocese gave Cardinal Bernard Law permission Wednesday to file for bankruptcy as the church tries to settle potentially crippling lawsuits in the priest sex abuse scandal.
Law would need approval from the Vatican before filing for bankruptcy.
No Roman Catholic archdiocese in the United States has ever taken such a step, which would give a secular court control over its finances and open it up to unprecedented scrutiny.
The Boston Archdiocese has been at the center of the abuse scandal rocking the U.S. church since January. It is negotiating with attorneys for some 400 alleged victims over possible settlements.
"We believe a mediated resolution would be preferable to seeking Chapter 11 protection and remain hopeful that this process currently under way will be successful," archdiocese spokeswoman Donna Morrissey said.
"However, we feel it is also necessary to carefully consider the alternative or complementary approach of a Chapter 11 reorganization."
Mitchell Garabedian, an attorney for some of the alleged victims, said archdiocese leaders were bluffing in an attempt to gain leverage in the negotiations. Attorney Jeff Newman, whose firm represents more than 200 alleged victims, said the threat of bankruptcy could jeopardize the settlement talks.
"What we're seeking from the cardinal is a clear statement that they'll come to the settlement table and give it ample opportunity to succeed, and during that time, they won't file bankruptcy," Newman said.
Morrissey said she did not know when Law will make a decision.
A bankruptcy filing would put litigation against the archdiocese on hold. It could also help the archdiocese get a better handle on what it will owe alleged victims, which could in turn assuage donors who have yanked support from the church because of the abuse scandal.
But it would transfer financial control of church assets to a bankruptcy judge.
The decision by the archdiocese's Finance Committee came one day after hundreds of pages of archdiocese personnel files were released concerning priests facing allegations of sexual abuse, drug use and other misconduct.
Many of the priests involved are not targeted in the lawsuits. However, the plaintiffs' attorneys hope the documents show a pattern of transferring priests to other parishes even after accusations of child abuse.
Earlier this year, the finance council rejected a proposed settlement worth up to $30 million for 86 victims of defrocked priest John Geoghan. Garabedian was forced to renegotiate and the two sides agreed on a $10 million settlement.
Plaintiffs' lawyers have called the archdiocese's consideration of a bankruptcy filing "intimidation" and "grandstanding." Garabedian said he doubts that "a religious entity would surrender its power to a civil entity."
"The (court-appointed) trustee would have the power to look at documents from the Vatican," he said. "I don't believe a religious entity, such as the Archdiocese of Boston, would want that."
No U.S. diocese is known to have filed for bankruptcy, though dioceses in Dallas and Santa Fe, N.M., were brought to the brink in the 1990s. Dallas reached a $30 million settlement in the case of pedophile and former priest Rudy Kos. And Santa Fe church officials had to borrow from parish savings accounts to pay more than $50 million to settle 40 abuse cases.