wfn.org | New Law on Charitable Donations Marks Victory for Churches

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30-July-1998 
98247 
 
    New Law on Charitable Donations 
    Marks Victory for Churches 
 
    by United Methodist News Service 
 
NASHVILLE-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 the debtor doesn't receive anything tangible in return for the 
contribution, she said. 
 
    "The problem has been severe for evangelical churches where tithing is 
an obligation," Logan 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. Representative 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. 
 
    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 
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. 

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