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God and Bankruptcy

By Russell A. DeMott, Charleston Bankruptcy Lawyer

Bankruptcy is in the Bible.  In fact, there are plenty of blog posts here on Bankruptcy Law Network about what the Bible says about debt.  Kurt O’Keefe’s “Is Filing Bankruptcy a Sin?” is just one of many posts.  Most of these posts discuss the Bible and the mortality of bankruptcy or apply particular Biblical principles to debt issues.

However, another area where the Bankruptcy Code and the Bible intersect is in the area of charitable giving.   How much you give to your church or synagogue is specifically addressed in the Bankruptcy Code’s means test (that’s form B23A for Chapter 7 and B23C for Chapter 13).

Your charitable giving, including what you give to your place of worship, is not materially limited by the Bankruptcy Code.  I say not “materially limited” because on the Chapter 13 means test, you can’t count charitable gifts in excess of 15% of your gross income.  Because most folks would not give more than 10% (the “tithe”) 15% isn’t a material limitation in my view.

What does this mean for my bankruptcy case?

Allowable expenses on the means test (1) make it more likely that you’ll qualify for a Chapter 7 (“straight”) bankruptcy and (2) make your Chapter 13 plan payments lower.

For example, if you don’t tithe, you could be over abuse on the Chapter 7 means test by $400, but if you tithe $500 a month, you’d be under abuse by $100.  Giving to God can really save you, pardon the pun.  In this example, it might save you from making Chapter 13 plan payments for five years and do your soul some good as well.

But there are limitations

As one Chapter 13 trustee I practiced before years ago used to say, “you can’t get religion right before you file bankruptcy.”  What he meant was that there must be a pattern of giving to establish that your giving is done out of conviction, not just to “game” the bankruptcy system.  How much time is necessary?  There’s really no set answer.  I would suspect that if your last two years’ tax returns showed giving at the level you claimed on your means test, your sincerity would likely not be challenged.  In addition, the trustee might want a letter from your clergy to validate your claim.

These means test allowances were an outgrowth of the Religious Liberty and Charitable Donation Act of 1998 and the Religious Liberty and Charitable Donation Act of 2006.  The 2006 “clarification” specifically addressed allowing charitable giving within the context of Chapter 13.

Charitable giving is protected in the Bankruptcy Code’s means test and in these federal statutes.  If you give to your church or synagogue, keep good records and be sure to discuss this with your bankruptcy lawyer.

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Full post as published by Credit Law Network on March 02, 2011 (boomark / email).