Under the bankruptcy code Charitable contributions are allowed in amounts to actually be contributed up to fifteen (15%) of a debtor’s gross income. However, the bankruptcy code once contained language held by courts to preclude payment of tithes or offerings unless is was determined as a necessary part of a debtor’s employment. See In re Diagostino, 347 B.R. 116 (2006) No. 06-10384 (Bankr. N.D.N.Y. 8/28/2006). This holding was overruled by Congressional amendment to the bankruptcy code when it passed the Religious Liberty and Charitable Donation Clarification Act of 2006 (S. 4044), making it clear money given by a debtor to a charitable organization, including tithing to a church, is not to be included when considering disposable income to be paid to a creditor in bankruptcy. But how has this panned out in real life. In southern Utah
where I practice bankruptcy it has been only allowed if a debtor can show a historical amount they have paid. For example, a debtor who files for
chapter 13 bankruptcy and wants to claim a deduction in the means test and in their budget for tithes must provide a copy of the last 12 months of giving and the trustee takes the average amount per month as the historical average allowed. At one time the trustee allowed for stipulation that debtors could claim the amount they assert they would pay with a review in 12 months and plan adjustment at that time, if needed, based upon the actual contributions given. The trustee however ended the practice. Recently, I argued this issue in the bankruptcy court. My position was that my clients had restricted their charitable giving when they went into financial distress. That as LDS Church members they wished to resume paying a full tithe and the historical average was not an accurate indicator. The trustee had objected on the grounds that my clients should only be restricted to the historical average and the debtors’ claim of approximately 10% of their gross should be disallowed. I had told my clients prior to filing they needed to begin paying their tithing in the amount they wished to claim moving forward. The time between their filing and the ultimate argument in the court was about 6 months. I was able to show the payment for the 6 months and the court said it was persuaded. The monies were either going dollar for dollar to the church or to pay unsecured creditors. The judge said in passing during arguments that a question would appear where the debtors thought it would do the most good. The court ultimately ruled that it believed in this case there was room to negotiate on the issue and ordered amendments based upon the amounts we were able to prove. While this does not give a hard and fast ruling and the trustee will likely still hold to the historical average position, perhaps there is room to create a plan provision to allow both the trustee’s concern of debtors who do not pay as promised and those that will and should be allowed to under the law. Only an experienced bankruptcy attorney can tell you what your rights are in regards to bankruptcy. But my advice at this point would be don’t fail to pay the mortgage and tithes to your church if you want to keep the house and continue to give to your church.
