In a ruling that eventually could impact devout Christians and members of other faiths across the country, a bankruptcy judge in New York ruled this week many debtors trying to pay their bills under Chapter 13 can't tithe or donate to charities until after they've paid their credit card debt.
Although the ruling isn't expected to have any immediate impact outside New York, it may encourage credit card companies and other creditors to seek similar rulings in Utah and other states, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys.
"Our nation's founding fathers who envisioned a separation of church and state never imagined that this division would be used to engorge the profits of moneylenders at the expense of churches," he said.
In issuing his ruling, Judge Robert Littlefield, Jr. of the U.S. Bankruptcy Court for the Northern District of New York relied on the nation's new bankruptcy reform law that went into effect last October. He determined that that law, pushed by the nation's credit card companies and supported by Sen. Orrin Hatch, R-Utah, and others, took precedent over the Religious Liberty and Charitable Donations Protection Act of 1998.
The Religious Liberty Act, which allowed tithing and other charitable donations to be made by those in bankruptcy, was signed into law by former President Clinton. At that time, Clinton said it would be "a great loss to all of our citizens for creditors to recoup their losses in bankruptcy cases from donations made in good faith by our citizens to their churches and charitable institutions."
Kevin Anderson, standing Chapter 13 trustee in Salt Lake City, said judges in Utah have been supportive of allowing tithing and charitable contributions - provided debtors can show a pattern of making such offerings prior to seeking bankruptcy court protection, and can offer proof the donations were made after they filed.
"Congress went to a lot of effort to pass the Religious Liberty Act and I don't believe they meant to alter it with the new bankruptcy law," Anderson said, pointing out that, to date, no one in Utah has objected to debtors making such contributions.
Still, prior to 1998 and the passage of the Religious Liberty Act, the bankruptcy court in Utah declined to allow tithes or offerings to be paid by those in Chapter 13 bankruptcy unless their repayment plans were more than "100 percent funded," which meant that their creditors eventually would get back all that was owed to them.
In the New York case, Frank and Patricia Diagostino filed for Chapter 13 bankruptcy on March 1 and listed a monthly expense of $100 for continuing charitable contributions. That expense, however, would have reduced the amount that could go to their creditors by approximately $6,000 over the five-year life of a Chapter 13 repayment plan.
The court appointed trustee in the case objected to the $100 a month expense, and the judge ruled that the 2005 bankruptcy reform law effectively closes the door for debtors above the median income level (for their state) from deducting charitable contributions as an expense. If the Diagostinos had earned less than their state's median income, they would have been able to make their charitable contributions while in bankruptcy.
The judge also wrote: "Whether tithing is or is not reasonable for a debtor in bankruptcy is for Washington to decide. However, consistency and logic would demand the same treatment of all debtors."
In Utah, which has one of the highest bankruptcy rates per household in the nation, approximately 62 percent of the state's population, according to state records, are affiliated with The Church of Jesus Christ of Latter-day Saints, which urges its members to pay 10 percent of their gross income as tithing.
A 2004 study of Utah bankruptcies by The Salt Lake Tribune found that even when facing financial collapse, 17 percent of those Utahns who filed for bankruptcy between July 1, 2003 and June 30, 2004 continued to donate significant portions of their income to churches and charities.
steve@sltrib.com
