WASHINGTON (BP)–President Clinton has signed into law legislation preventing creditors from seizing money given to churches and charities by people who have filed for bankruptcy.
The Religious Liberty and Charitable Donation Protection Act counters a series of rulings in recent years ordering churches to surrender tithes contributed by members who later filed for bankruptcy.
The new law amends the federal bankruptcy code to:
— prohibit a federal bankruptcy judge from forcing a church or charity to return past gifts of as much as 15 percent of the bankrupt person’s gross income. It would protect a larger percentage if the debtor has demonstrated a pattern of contributing more than 15 percent.
— allow a person who has filed for Chapter 13 bankruptcy to include tax-exempt contributions of as much as 15 percent of his gross income in a budget for debt repayment.
The bankruptcy code previously permitted a person who has filed for bankruptcy to budget moderately for entertainment, including gambling and alcohol, but increasingly courts have ruled a debtor may not budget money for a tithe to his church, because such giving does not provide a “reasonably equivalent value.”
In signing the bill June 19, the president called it a “great loss to all of our citizens for creditors to recoup their losses in bankruptcy cases from donations made in good faith by our citizens to their churches and charitable institutions.
“As Americans we also know that giving, whether to one’s church, temple, mosque or other house of worship or to any charitable organization, fosters and enriches our sense of community,” Clinton said in a written statement. “We need to encourage, not discourage, that sense of community.”
The Senate approved the legislation by a 99-1 vote in May, while the House passed it without opposition in June. Sen. Charles Grassley, R.-Iowa, and Rep. Ron Packard, R.-Calif., were the chief sponsors of the legislation.
“Under the old bankruptcy statutes, debtors could spend their money on alcohol, gambling and 1-900 psychic advice calls but couldn’t drop as much as a dime into a collection plate without breaking the law,” Packard said in a written release after the president’s action. “Without this new law, a church or charity would have to check the financial background of anybody who wished to tithe or make a contribution just to protect against a future lawsuit. That’s absurd.”
Will Dodson, director of public policy for the Southern Baptist Ethics & Religious Liberty Commission, said, “Unless a church has ever been sued for contributions made by someone in bankruptcy proceedings, it may not fully appreciate the significance of this act. But this is a very important piece of legislation that will protect every church from being sued for somebody else’s debt. All churches should be grateful that the Grassley-Packard bill has been signed into law.”
A growing number of churches have faced lawsuits by creditors and bankruptcy trustees since the Crystal Evangelical Free Church of Minneapolis was ordered by a state court in 1992 to return tithes from a couple in the church. The Minneapolis church has spent nearly $300,000 in defending itself, pastor Stephen Goold told a Senate subcommittee last fall.
In recent years, churches in states such as Colorado, Connecticut, Idaho, Kansas, Kentucky, Oregon, Pennsylvania and Texas have faced actions by federal bankruptcy trustees. These include at least three Southern Baptist churches, Cedar Bayou Baptist Church in Baytown, Texas; First Baptist Church in Klamath Falls, Ore., and Midway Southern Baptist Church in Wichita, Kan.
