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 bankruptcy court in Colorado addressed the authority of bankruptcy trustees to recover charitable contributions made by bankrupt debtors within a year of filing a bankruptcy petition. A married couple (the "debtors") filed for Chapter 7 bankruptcy relief on December 31, 2009. In 2008, the debtors' gross earned income was $6,800 and they received $22,036 in Social Security benefits. Throughout 2008, the debtors made 25 donations to their church totaling $3,478. In 2009, the debtors' gross earned income was $7,487 and they received $23,164 in Social Security benefits. Throughout 2009, the debtors made 7 donations totaling $1,280 to their church.