wfn.org | New law on charitable donations marks victory for churches

[NewsDesk <NewsDesk@UMCOM.UMC.ORG>]

June 24, 1998        Contact: Tim Tanton*(615)742-5470*Nashville, Tenn.
{379}

By United Methodist News Service

A new law protecting charitable donations from creditors in bankruptcy
cases represents a coup for churches and other nonprofit organizations,
an attorney for a United Methodist agency says.

The new law, dubbed the Religious Liberty and Charitable Donation
Protection Act, prevents creditors from claiming charitable
contributions that are made by donors who later file for bankruptcy. The
legislation was signed by President Clinton on June 19.

The law is a "major legislative coup," said Mary Logan, general counsel
for the United Methodist Church's General Council on Finance and
Administration.

Bankruptcy trustees have been going after donations made by debtors to
churches, claiming that the donations are fraudulent transfers made in
anticipation of bankruptcy, Logan said. The charge of fraud hinges on
the belief that the debtor doesn't receive anything tangible in return
for the contribution, she said.

The problem hasn't been acute for local United Methodist churches, Logan
said.

"There have been isolated examples of United Methodist churches where
this has been an issue, but not nearly to the extent that it has been a
problem for other denominations," she said.

"The problem has been severe for evangelical churches where tithing is
an obligation," she said. "The Mormon church, the Seventh-day Adventists
and some other denominations have had hundreds of claims by bankruptcy
trustees."

The claims began in the wake of a 1992 court decision, in which a
trustee was allowed to collect thousands of dollars in past tithes from
a Minnesota church, according to the office of U.S. Rep. Ron Packard,
R-Calif., who pushed the legislation.

"It's absolutely unbelievable that a place of worship or a charity can
be held responsible for a debt they had nothing to do with," Packard
said in a prepared statement.

"Bankruptcy trustees have been aggressive in several geographic areas
and have piqued the interest of other bankruptcy trustees to try the
same thing," Logan said.

Besides protecting the donations, the new law allows debtors to make
charitable contributions after declaring Chapter 13 bankruptcy. Under
Chapter 13 of the U.S. Bankruptcy Code, a debtor can reorganize his or
her finances and pay back creditors under a court-approved plan.

Though pleased with the new law, Logan expressed concern about a deeper
issue related to the position taken by the bankruptcy trustees.

"The most troubling thing about this for me and, I think, for all church
people, should be that the bankruptcy trustees were making the argument
that there was nothing received back to the debtor by giving this money,
and therefore it was a fraudulent conveyance," she said. "I am concerned
that the bankruptcy trustees making this argument don't seem to
understand what church is all about."

Increasingly, many judges and lawyers don't understand the positions
that religious organizations and people take on spiritual issues, she
said.

While the legislation will not directly benefit a large number of United
Methodist churches or individuals, Logan said, it "shows that Congress
is still willing to stand up for important religious beliefs."

Experts predict that a group of bankruptcy trustees will file a legal
challenge to the constitutionality of the new statute.

United Methodist News Service
(615)742-5470
Releases and photos also available at
http://www.umc.org/umns/