Can Bankrupt Debtors Make Contributions to Their Church?

Discover how the Religious Liberty and Charitable Donation Act ensures charitable contributions remain protected in bankruptcy cases.

Last Reviewed: January 23, 2025

In re Kirschner, 259 B.R. 416 (M.D. Fla. 2001)

Understanding the Case

A couple with $100,000 of debt filed for bankruptcy, but their petition was opposed by a bankruptcy trustee. The trustee argued that their plan, which included donating ten percent of their income to their church, was not “reasonably necessary for the debtors’ maintenance and support.” The trustee claimed these donations should be classified as disposable income and allocated to creditors instead.

The Court’s Decision

The federal bankruptcy court ruled that the couple’s plan could not be denied because of their proposed charitable contributions. Under the Religious Liberty and Charitable Donation Protection Act of 1998, bankruptcy plans cannot be rejected solely because they include charitable contributions, as long as these contributions meet specific conditions.

  • Contributions must not exceed 15 percent of the debtor’s gross annual income.
  • If contributions exceed 15 percent, they must align with the debtor’s regular practice of giving.

Congress intended this law to “protect the rights of debtors to continue to make religious and charitable contributions after they file for bankruptcy relief.”

Key Considerations

The court noted that the couple’s contributions to their church were less than 15 percent of their annual income. As a result, the bankruptcy plan could not be rejected solely on the basis of these donations, despite their significant debt. However, the court required the couple to provide proof of their contributions to prevent misuse of allocated funds.

Documentation Requirements

  • Debtors must provide documentation of charitable giving to the bankruptcy trustee.
  • Receipts or acknowledgments from the church can be used as proof.
  • This ensures transparency and prevents fraudulent claims.

Implications for Churches

Churches receiving charitable contributions from individuals in bankruptcy should issue clear receipts. These documents not only support tax deductions but also help donors comply with court requirements during bankruptcy proceedings.

FAQ Section

What is the Religious Liberty and Charitable Donation Protection Act?

The Act ensures that individuals in bankruptcy can continue making religious and charitable contributions up to 15 percent of their gross annual income.

Are charitable contributions always protected in bankruptcy cases?

Yes, as long as the contributions meet the conditions outlined in the Act, including the 15 percent income limit.

Do debtors need to prove their charitable contributions?

Yes, debtors must provide documentation, such as receipts, to demonstrate that contributions were made as stated in their bankruptcy plan.

How can churches support donors in bankruptcy?

Churches can help by providing detailed receipts and acknowledgments of contributions, ensuring compliance with legal and tax requirements.

This article first appeared in Church Treasurer Alert, June 2002.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
ChatGP4o, Team Gloo Workspace

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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