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Returning Donations to Bankruptcy Trustees

Federal court rules in favor of church in bankruptcy dispute.

Key point. Some courts have ruled that bankruptcy trustees do have the legal authority to require churches to return contributions made by bankrupt debtors during the year prior to filing a bankruptcy petition.

A federal appeals court ruled that a bankruptcy trustee could not require a church to return $13,000 in contributions that had been made by a member during the year prior to filing a bankruptcy petition. The church and the member both believed in tithing, and the member faithfully tithed up until the time he filed for bankruptcy. The trustee demanded that the church return the $13,000 in contributions made during the previous year. It relied on a provision in the bankruptcy code giving trustees the authority to "avoid" transfers made by debtors within a year of filing for bankruptcy unless they receive property or services of "reasonably equivalent value" in exchange. The church ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Posted:
  • November 1, 1996

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