Churches pray for mercy in bankruptcy law

Insight on the News, March 16, 1998 by Keith Russell, James P. Lucier

For many, giving money to a local church might seem like a priceless spiritual exchange for the rescue of Fouls, but under current U.S. bankruptcy laws it's still not worth the shirt on your back. That's because while your shirt might be considered an exchange of "reasonably equivalent value" in the bankruptcy code and not liable to be confiscated, tithes or other forms of religious and charitable giving aren't protected.

As a result, many churches and other religious institutions, already financially strapped, have been forced to wage bitter fights with bankruptcy trustees over religious donations made by church members or parishioners who file for bankruptcy.

"The truth is that that which is of greatest value -- the human spirit -- is now being made of no value," said Stephen Paul Goold, senior pastor at Crystal Evangelical Free Church in Minneapolis. For the last six years, the church has been involved in a prolonged legal fight to keep from returning money it received from a bankrupt couple who had regularly tithe.

Fortunately for religious organizations like Goold's, members of Congress are committed to changing the bankruptcy laws to keep honest religious giving from being confiscated to pay off creditors. Three bills in the House and Senate are winding through committees that would treat religious donations as exchanges worth a "reasonable equivalent value."

"The time to end this misapplication of the bankruptcy code is now," said Idaho Republican Rep. Helen Chenoweth at a recent House hearing on her bill, the Religious Fairness in Bankruptcy Act. "The right to free exercise of religion is a fundamental liberty expressed in our Constitution. Religious freedom must be protected." California Republican Rep. Ron Packard and Iowa Republican Sen. Charles Grassley also have similar legislation in the works.

The reforms have considerable bipartisan support and are seen as especially necessary in light of the Supreme Court's recent striking down of the Religious Freedom and Restoration Act, which had given religious institutions greater protections.

However, there are some disagreements about whether donations to charitable organizations should be included in the exemption -- Packard believes they should, but Chenoweth disagrees -- and both measures were opposed at the House hearing by the influential National Bankruptcy Conference, whose spokesman, Steven Case, wondered aloud whether prospective bankruptcy filers will use the reforms to "stop off at the local charity and make a donation on their way to file bankruptcy," thereby creating a rash of charitable giving at the expense of creditors.