Charitable Giving & Tithing: Protected Expenses in Bankruptcy
Charitable contributions and tithing in particular are protected activities under the US Bankruptcy Code. In 2006, Congress enacted the Religious Liberty and Charitable Donation Clarification Act of 2006, which made clear that monthly average amounts of religious charitable contributions and tithing amounts in particular are not included in “net available income” in bankruptcy.
What that means, in essence, is that you are able to continue making regular charitable contributions, particularly if they are religious in nature, up to a certain reasonable amount through a bankruptcy.
Charitable Giving and Tithing in Chapter 7 Bankruptcy
Specifically, in a Chapter 7 bankruptcy context, in which the US Trustees reviewing a bankruptcy petition must decide whether the person filing it actually has enough available income to support a Chapter 13 bankruptcy payment plan instead (if so, the petition is subject to being dismissed unless converted to Chapter 13). When a US Trustee makes this determination, he or she reviews the filing debtor’s monthly expenses to determine if any of them are not justified. Charitable or tithing expense, unless it is something the debtor has only just started doing right before filing for bankruptcy (last-minute Calls to Jesus are treated skeptically, to say the least!) or it is wildly out-of-proportion to the debtor’s monthly income, will not be considered as “potential Chapter 13 payment funds.”
Charitable Giving and Tithing in Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy context, the allowed charitable giving or tithing expenses means that the Chapter 13 Trustee should not insist that the expenses be stricken from the prospective budget, increasing the size of the monthly Chapter 13 plan payment accordingly.
In other words, a regular, routine, and historically provable monthly expense for tithing or charity can be listed among your other necessary monthly average expenses, such as food, gasoline, medical expenses, clothing, and so on. The necessary monthly expenses that you have represent funds you earn each month that do not have to be paid into your Chapter 13 payment plan. You are allowed to keep those funds in hand in order to continue tithing or making your charitable contribution each month.
The remainder of your take-home pay not dedicated to your expenses is what you must pay to your creditors via the Chapter 13 payment plan. Read more about the Chapter 13 payment plan here for a more detailed explanation about how Chapter 13 bankruptcy actually works.
Can I Make Charitable Contributions or Tithe in Bankruptcy? The Bottom Line
However, regardless of the law, bankruptcy Trustees are always on the look-out for abuses. If you have a steady history of monthly charitable giving and want to continue the giving even though you may need to file for bankruptcy, begin collecting documentation to prove the frequency and amount of the payments and the identity of the church, temple or synagogue, or charitable organization receiving the funds. If you are throwing cash into an offering plate, start writing checks instead, or find out if the bookkeeper responsible for accounting for the institution’s donations can provide you with receipts or other documentation proving the history and size of the donations.
A good bankruptcy attorney will request these documents from you prior to filing your case.
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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