Congress considers exempting church donations from bankruptcy law

Wednesday, February 18, 1998

Just as Christians ask in the Lord’s Prayer to have their debts forgiven, some religious organizations are asking Congress for relief from creditors of their bankrupt members.

Michael P. Farris, an attorney and president of the Home School Legal Defense Association, a group dedicated to defending religious freedom, recently asked a House Judiciary subcommittee to approve The Religious Fairness in Bankruptcy Act.

The act, introduced last year by Rep. Helen Chenoweth, R-Idaho, would amend the federal bankruptcy code and grant greater protection for churches from bankruptcy trustees seeking to recover charitable contributions of insolvent members.

Farris told the committee that at the heart of the issue is whether religious organizations should be forced by bankruptcy trustees to refund church donations from individual members who have filed for bankruptcy.

“Who would have thought that here, in America, a church would be sued and forced to refund tithe money that had been donated in good faith by a church member in good standing?” Farris asked the committee.

“As a constitutional lawyer, I grieve at the thought that sincere religious believers would be forced to choose between ‘robbing God’ and violating the bankruptcy laws.”

Steve McFarland, director of the Christian Legal Society’s Center for Law and Religious Freedom, told the committee that current federal bankruptcy law ensures that churches will continue to lose their tithes and offerings to creditors.

McFarland added that his organization has been involved in several proceedings throughout the nation where bankruptcy trustees have sought to recover tithes and offerings to churches.

The Christian Legal Society is currently representing churches in Washington and Oregon against bankruptcy trustees seeking to recover past donations of bankrupt parishioners. Additionally, the group has provided legal assistance to churches in Idaho, North Carolina and Pennsylvania facing similar actions.

McFarland claims the federal bankruptcy law should be altered because the First Amendment provides insufficient protection for religious organizations. McFarland points to several recent federal court decisions that he claims have made it easier for government to create laws that interfere with the practice of religion.

The Supreme Court in the 1990 decision, Employment Div. v. Smith, ruled laws not intended to target religious persons do not have to be justified by a compelling government interest even though such laws might burden them.

Since the bankruptcy code applies to all Americans and has a secular intent to provide a legal proceeding for people seeking a fresh economic start, federal courts have found no free-exercise problem with bankruptcy trustees “confiscating tithes and offerings, even when given in good faith to churches well prior to filing of bankruptcy by the parishioner,” McFarland told the committee.

Oliver Thomas, a religious-liberty attorney, agrees with McFarland that religious organizations should be allowed to keep tithes and other offerings given prior to a parishioner’s filing for bankruptcy.

Thomas, however, said Chenoweth’s bill goes too far because it allows a parishioner, already known as insolvent, to continue donating tithes and offerings without increasing the person’s debt to creditors. Thomas said that one could argue Chenoweth’s amendment actually requires creditors to support an insolvent person’s religious obligations.

“The act, I think, is a very important and necessary amendment to the bankruptcy code,” Thomas told the First Amendment Center. “At the current time a person could squander thousands of dollars on overpriced booze at a liquor store and a bankruptcy trustee does not have authority under the current code to try and recoup the money.

“Tithes and offerings made in good faith, however, are not protected by the current code,” he said. “Instead religious donations are seen by the code as fraudulent conveyances and bankruptcy trustees have the authority to try and recoup that money.

“Thus, I think it is important for the government to accommodate the many churches and synagogues that are being asked to disgorge past tithing and offerings that could have been given years ago.”

Nonetheless, Thomas said Chenoweth’s bill raises questions about the Establishment clause—the principle of separation of church and state—that need to be explored further.

“Pre-bankruptcy contributions, if made in good faith, should be protected,” he said. “But post-bankruptcy contributions should not have to be subsidized by creditors because that would raise Establishment clause problems. I think that the bill is a little greedy.”

McFarland, however, argues the First Amendment requires that charitable contributions to “religious organizations should be treated specially.”

“The bankruptcy code currently gives the debtor many generous exemptions at the expense of creditor recovery,” McFarland told the committee.

“Maximizing the size of the bankrupt estate must not be of preeminent value in the eyes of Congress, or else the code would not have been loaded with so many exemptions. If the rationale for these exemptions is to ensure that the debtor will have a fresh start, then certainly ensuring the proper enforcement of our First Freedom (religious liberty) should also take precedent over the interest of creditors.”