Charitable Contributions

Donating money is an act of kindness. For those who are religious and attend church, donations are made every Sunday. When a person is filing Chapter 7 bankruptcy these donations and charitable contributions could be a problem. In some cases, a Chapter 7 bankruptcy Trustee can avoid these donations and charitable contributions and pull the money back. Why? Because in some cases it is constructively fraudulent. Oh, and in your petition, you will have to disclose your Charitable Contributions.

First let’s talk about religion. The U.S. Constitution and the Religious Freedom Restoration Act of 1993 protects a debtor’s free exercise of religion. Tithing (which is another term for making a charitable contribution) is an act of religious faith. There were some jurisdictions (like the 8^th Circuit) that have found that charitable contributions to a church as part of religious practice could not be avoided by the Trustee. The Bankruptcy Code fixed this problem. No longer is the Religious Freedom Restoration Act an issue.

The Bankruptcy Code dictates that a Trustee cannot avoid charitable contributions to a qualified religious or charitable entity or organization where:

The contribution amount does not exceed 15% of the debtor’s gross annual income for the year the contribution was made; or
The contribution exceeds the 15% threshold, but the amount is consistent with the debtor’s donation practices.

So how are the debtor’s donation practices determined? Look at the amount of the transfer versus past transfers and the percentage of the debtor’s income each year that is devoted to charitable contributions.

If charitable contributions are made with an actual intent to hinder, delay, or defraud creditors then the charitable contribution is avoidable by the Trustee regardless.

The idea here is to make sure that a debtor filing for Chapter 7 bankruptcy protection is not hiding money from the Trustee. A debtor cannot make large charitable contributions removing the money from their assets and hope that the trustee does not take the money and distribute it to creditors. So, if you are filing Chapter 7 bankruptcy and you have made charitable contributions you may want to take a deeper look or have a lawyer assist you so there are no issues.