Key point 9-09. Bankruptcy trustees are prohibited by the federal Religious Liberty and Charitable Donation Protection 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. This protection extends to any contribution amounting to less than 15 percent of a debtor's gross annual income, or more if the debtor can establish a regular pattern of giving more. 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. Again, this protection applies to debtors whose bankruptcy plan calls for making charitable contributions of less than 15 percent of their gross annual income, or more if they can prove a pattern of giving more.
A federal court in California ruled that a bankruptcy trustee could not recover charitable contributions made by a church member to his church in the year preceding his filing of a bankruptcy petition, since the amount of his contributions were less than 15 percent of his gross annual income. A physician filed a Chapter 7 bankruptcy petition that listed $90,000 in assets and nearly $600,000 in debts. Shortly after the bankruptcy petition was filed, the bankruptcy trustee brought an adversary proceeding against the physician's church, seeking to recover $18,000 in charitable contributions he made to the church during the previous year.