When members struggle financially, financial institutions may come knocking.
A national bank recently subpoenaed an Iowa church's financial records, seeking information about donations made by a man whose business defaulted on a $650,000 loan.
The financial institution wants to know about cash and property given to the church by the man and his wife since 2005, according to The Des Moines Register newspaper. The man's lawyer says the bank intends to try to collect money he gave by investigating to see if those gifts qualify as fraudulent transfers.
The amount the bank can receive from the church may depend on whether or not the man files for bankruptcy.
"So long as [this man] doesn't file bankruptcy, there is a viable argument under state law that any contribution could be a fraudulent conveyance," said Patrick Bauer, a University of Iowa law professor, according to The Des Moines Register.
At the time of the article, the man declined to file for bankruptcy. If he does file, the church will benefit from the Religious Liberty and Charitable Donation Protection Act that, according to Richard Hammar in Pastor, Church & Law, Volume Four: Liability & Church and State Issues, "provides significant protection to churches as well as to church members who file for bankruptcy."
"Bankruptcy trustees are prohibited by the Act from recovering contributions made by bankrupt debtors to a church or other charity prior to declaring bankruptcy, unless the contributions were made with an intent to defraud creditors," Hammar said in the book, "In addition, the Act bars bankruptcy courts from rejecting a bankruptcy plan because it allows the debtor to continue making contributions to a church or charity."
Bauer told the newspaper that churches have been the target of creditors as well as bankruptcy trustees in the past because of claims that the contributions could be seen as a way to avoid paying debts.
The church declined to comment to the newspaper regarding the matter.
For more detailed information on how the bankruptcy code relates to churches and church members, see section nine of chapter nine in Pastor, Church & Law, Volume Four: Liability & Church and State Issues. This free Weekly Lesson for church business administrators on ChurchLawAndTax.com by Hammar also provides additional guidance.