Germantown Settlement, one of Philadelphia’s most venerable social-service agencies, has filed for bankruptcy, overwhelmed by mounting debt brought on by fiscal mismanagement.

Financed largely by taxpayer dollars for decades, Settlement’s debts include about $2 million in unpaid taxes and millions more in government loans. By its own estimation in August, it was $38 million in debt.

Settlement and a key subsidiary, Greater Germantown Housing Development Corp. (GGHCD), filed for Chapter 11 protection Thursday. They follow another Settlement subsidiary, Greater Germantown Education Development Corp., which filed for bankruptcy March 18.

“Faced with significant debts and obligations, the organizations have decided to reassess and restructure their assets in order to raise the needed capital to support a five-year plan of recapitalization of the organizational family,” according to a statement released by Settlement.

“. . . Working with its existing boards, senior staff, outside advisers and legal counsel, the two organizations expect to emerge from the Chapter 11 as much leaner organizations with renewed and strategic focus.”

Emanuel V. Freeman, Settlement’s president, declined comment, directing questions to Settlement’s attorneys. Freeman, who has served as Settlement’s leader for 28 years, faces criminal charges, filed in August, accused of failing to make $11,668.83 in payments to the state unemployment compensation fund.

“This entity and its community mission has been around for a very long period of time,” said Albert A. Ciardi III, Settlement’s bankruptcy attorney. “We are going to restructure it and reorganize it. It will come out stronger and better financed than it is now.”

Ciardi said the bankruptcy filing would halt a planned sheriff’s sale of the Germantown YWCA Building, which Settlement bought in 2006 with a $1.3 million loan from the city’s Redevelopment Authority. The sheriff’s sale, which was set for Tuesday, was intended to recoup the RDA’s money.

Settlement’s lawyers were still trying to determine how the bankruptcy filing will affect the U.S. Department of Housing and Urban Development’s foreclosure action against two apartment complexes for the elderly owned by the nonprofit.

Elders Place and Elders Place II were built largely with HUD funding. HUD audits of the operations of both identified $956,000 in expenditures that could not be properly accounted for.

A HUD recommendation to foreclose on the properties cited the $956,000, five years of unsubmitted audits, and “gross mismanagement of project funds.”

HUD calculates Settlement owes U.S. taxpayers $11.1 million for loans to build the properties.

HUD first notified Settlement of its intent to foreclose in November 2008. Freeman did not respond for seven months. When he did, he wrote that he had missed HUD notices because he was on vacation and later jury duty.

The debts to HUD represent just a piece of what Settlement and its subsidiaries owe taxpayers. The organizations are delinquent on four loans from the Philadelphia Industrial Development Corp. totaling $3.2 million. Beyond the $1.3 million loan for the YWCA, Settlement owes the RDA an additional $925,000. And the Pennsylvania Housing Finance Agency is owed $3.43 million.

Settlement is also delinquent on a $7 million loan from Parke Bank, which is secured by the Burgess Center at 200 W. Chelten Ave.

In announcing its bankruptcy filing, Settlement released a resolution by the GGHDC’s board of directors that stated the organization would consider selling the Burgess Center, a commercial office building, to resolve its debts.

The bankruptcy filing represents a new low in a long downward spiral of one of the city’s oldest and most respected agencies delivering social services.

Founded in 1884 by Quakers to aid newly arrived German immigrants, Settlement grew over the next 126 years to become the premier broad-based, community-service group in the Germantown area.

As recently as the mid-1990s, it was routinely touted as a model for such groups.

Over the last decade, however, it has been perennially behind in its debts and routinely sued to recover back taxes. Its primary source of funds has been government grants. Its 2007 tax return, the last on record, shows it received $4.8 million in government contributions.

The last audit it submitted to the city, for the 2005 fiscal year, showed it was then operating with a $4.7 million cash shortfall.

The city has canceled all its contracts with the nonprofit organization. The U.S. Attorney’s Office is reportedly conducting an investigation of Settlement.

In an interview in January, Freeman blamed his organization’s troubles on miscalculations he had made as it regarded Settlement’s ability to improve the financial condition of the people it aimed to serve.

“Many of our projects were predicated on the assumption that the income of people in the community would grow over time,” he said. “In fact, the opposite happened. And the need for our services grew and grew. Operating costs increased, our reserves got depleted.”

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