News Articles

Proposal introduced to protect charitable gifts from creditors

WASHINGTON (BP)–Legislation has been introduced in both houses of Congress to prevent creditors from being able to seize money given to churches and charities by people who have filed for bankruptcy.
The bills are designed to counter a series of recent rulings ordering churches to surrender tithes contributed by members who later filed for bankruptcy. In September, a Southern Baptist church in Baytown, Texas, suffered such a setback.
The Religious Liberty and Charitable Donation Protection Act would amend federal law 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 law now permits a person who has filed for bankruptcy to budget moderately for entertainment, but increasingly courts have ruled a debtor may not budget money for a tithe to a church, because such giving does not provide a “reasonably equivalent value.”
“This is an obvious assault on the freedom of religion,” Sen. Charles Grassley, R.-Iowa, said from the Senate floor in introducing the bill Oct. 1. “Would our founding fathers have wanted a federal judge to tell a citizen that he’s not allowed to tithe to his church? Obviously not.”
The chief House sponsor, Rep. Ron Packard, R.-Calif, said in a written statement “every offering plate in America is at risk” unless protection is provided.
“Our legislation makes it absolutely clear that churches and charities are not ‘cash cows’ for bankruptcy lawyers,” Packard said. “This is just another example of how ludicrous the courts can be. We are allowing people to take cruises, gamble, even call psychic hotlines, but denying them the right to exercise their faith through tithing or contributing to charities.”
It appears the legislation has a better chance for quick action in the House, where there was a bipartisan group of 66 original cosponsors, including Speaker of the House Newt Gingrich, R.-Ga., and Majority Leader Dick Armey, R.-Texas.
Meanwhile, a growing number of churches are seeking relief in the wake of the Supreme Court’s June opinion striking down the Religious Freedom Restoration Act on at least the state and local levels. In the first such bankruptcy case to reach a federal appeals court, the Eighth Circuit ruled in 1996 RFRA protected the Crystal Evangelical Free Church of Minneapolis from having to return the tithes of a member who had filed for bankruptcy. After its RFRA decision, however, the Supreme Court returned the case to the Eighth Circuit for rehearing.
Churches in Colorado, Connecticut, Idaho, Kansas, Kentucky, Oregon, Pennsylvania and Texas have faced actions by federal bankruptcy trustees in recent years, according to the Christian Legal Society. These include at least three Southern Baptist churches.
In early September, a state court judge in Houston relied on a similar Texas law in ordering Cedar Bayou Baptist Church of Baytown to surrender $23,000 in tithes or gifts from a bankrupt member to a creditor.
In mid-August, a bankruptcy trustee ordered First Baptist Church, Klamath Falls, Ore., to return nearly $5,000 given to the church in the previous year by a couple who have filed for bankruptcy.
Midway Southern Baptist Church, Wichita, Kan., has been ordered to give up nearly $2,500.
In a Sept. 22 hearing before a subcommittee of the Senate Judiciary Committee, Stephen Goold, pastor of Crystal Evangelical Free Church, said the church has spent about $280,000 in defending itself.
In his written testimony, Goold told the subcommittee the current trend would result in “the wholesale deprivation of the rights of any devout religious believers who find themselves in bankruptcy and could in many cases seriously disrupt the budgets and programs of churches.
Two law professors and a representative from the Christian Legal Society endorsed the legislation.
Todd Zywicki, assistant professor of law at Mississippi College, said in written testimony, “Focusing on the receipt of an economic benefit in exchange for the contribution ignores the fact that the contributions are animated by a spirit of religious and ethical obligation. Indeed, it is this very absence of selfish motives which makes the contributions praiseworthy. Although unquestionably consistent with the bankruptcy code, the current approach slights these noble impulses and sacrifices them to the parochial interests of the bankruptcy code.”