Did you know that America is full of charitable people? It’s true. Even during recessions and times of high unemployment, approximately 80% of Americans continue giving to charities. Many people continue to struggle to make contributions to churches, groups, organizations, and causes that they believe in after losing their job or while struggling to stay afloat amid overwhelming debt. Some people may even delay turning to bankruptcy for relief because they fear filing will mean they can no longer donate. They may also be afraid that the bankruptcy trustee will have the power to force a church, group, etc. to return charitable donations made in the year before the bankruptcy.
Is There a Similar History of Donations?
It’s a shame that good people delay turning to bankruptcy for relief since bankruptcy law protects both a debtor’s right to donate and a charity’s right to retain a donation. When taking the means test to determine Chapter 7 bankruptcy eligibility, debtors can allocate as much of their income to charity as they want as long as doing so is not out of the norm for them according to their history of donations.
When Charitable Donations Are Not Acceptable to the Bankruptcy Court:
If a history of similar donations does not support the charitable donation, the bankruptcy court will recognize it as a strategy to pass the Chapter 7 means test. If filing for Chapter 13 bankruptcy, the court will watch for out of the norm charitable donations that could be a strategy to reduce the disposable monthly income and the resulting Chapter 13 monthly plan payment.
Bankruptcy Law Protects Debtors’ Rights to Make Charitable Contributions:
The Religious Liberty and Charitable Donation Clarification Act of 2006 built on another act of Congress, the Religious Liberty and Charitable Donation Act of 1998. The 2006 legislature clarified that Chapter 13 bankruptcy filers have the right to make charitable donations. Under the 1998 act, gifts up to 15% of the donor’s income in the year preceding bankruptcy were not recoverable by the bankruptcy court. Contributions over the 15% threshold could be exempt if the debtor could show the court that donations were consistent with past donations. For example, if a bankruptcy petitioner donated 18% of their income in the year preceding bankruptcy to their church, but they have done so consistently over the past five years, the bankruptcy court would not attempt to recover the donations.
If you have questions about how filing bankruptcy could affect your ability to donate, or if you are afraid the bankruptcy court may attempt to recover funds you have donated, don’t hesitate. Call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.