A federal law protects the charitable giving of donors who declare bankruptcy
Article summary. Last year Congress enacted the Religious Liberty and Charitable Donation Protection Act. The Act accomplishes two important results. First, it protects churches and other charities from demands by bankruptcy courts that they return contributions made by a bankrupt donor. Second, the Act allows most persons who file for bankruptcy to continue making contributions to their church or charity. In the past, many courts rejected both of these protections. This article provides church leaders with a practical understanding of how the new law will affect them.
In the past, churches were hurt by federal bankruptcy law in two ways. First, many courts ruled that bankruptcy trustees could recover contributions made to a church by a bankrupt donor within a year of filing a bankruptcy petition. Second, church members who declared bankruptcy were not allowed by some bankruptcy courts to continue making contributions to their church. These harmful restrictions were eliminated last year when Congress enacted the Religious Liberty and Charitable Donation Protection Act. The Act, which is actually an amendment to the bankruptcy code, provides significant protection to churches as well as to church members who file for bankruptcy. This feature article will review the background of the Act, explain its key provisions, and demonstrate its application with practical examples.
Authority of bankruptcy trustees to recover charitable contributions