Tithing While in Bankruptcy
Alabama has a well-earned reputation for charitable donations and religious tithing, often ranking in the top 10% of states for giving. When these donations are an essential part of an individual’s or family’s life, the US Bankruptcy laws and rules will allow continued donations even if the giver has sought bankruptcy protections from creditors. However, like most issues in law there are certain restrictions and requirements when making charitable donations while in bankruptcy, and your Montgomery, Selma, And Central Alabama bankruptcy attorneys at The Sellers Law Firm will be able to guide you through these limits. These limits may impact future donations as well as donations prior to filing bankruptcy.
In 2006 the United State Congress passed the Religious Liberty and Charitable Donation Clarification Act to the United States Bankruptcy Code. The Charitable Donation Act impacts both Chapter 7, liquidation bankruptcies, as well as Chapter 13 reorganization bankruptcy, where some creditors may be paid through monthly payments to the trustee. There are two major restrictions on religious and charitable gifting under the Charitable Donation Act and that is donations cannot be more than 15% of the annual gross salary of the debtor except when the debtor has a history of making charitable donations greater than 15% of their annual gross salary. Also, the donations must be made to a qualified religious, charitable organization, or governmental organization that makes a public use of the donated funds. Donations made to individuals may be considered gifts to that individual and will be closely scrutinized by the Court and generally cannot be given while in a bankruptcy case unless that individual is a dependent or member of the debtor’s household. All of these circumstances can be discussed with the attorneys at The Sellers Law Firm. You may call or text us at 334-LAWYERS (529-9377), use the Contact Form on our website, or email us at firstname.lastname@example.org to set a free consultation to meet with us to discuss your financial issues.
Continuing to make charitable donations for persons considering filing Chapter 7 bankruptcy may assist that person in being able to file a Chapter 7. To file a Chapter 7 bankruptcy, the debtor must pass the means test. (you may find information regarding the means test on our website). The means test compares an individual’s income against the cost of living in their area as well as the number of people in the household. To file a Chapter 7 bankruptcy, the debtor’s income with certain deductions including tithing and charitable donations must be lower than an amount determined by the federal government. So, making donations may assist a debtor with being able to file the Chapter 7 bankruptcy. The Charitable Donation Act allows Chapter 7 filers to continue making tithes or charitable donations as long as the person has a long and established history of making donations. Also, the amount being donated cannot be an unreasonable amount in relation to the person’s monthly gross income.
A debtor may also continue to make tithings and charitable donations while they are in a Chapter 13 repayment plan. In fact, those donations may be used to reduce the disposable income that must be paid to creditors. When a Chapter 13 reorganization plan is proposed to the Court, the debtor must include both their income and average monthly expenditures, the difference between the two is the disposable income and needs to be promised to be paid to your creditors. The Court, trustee, and creditors will be given the opportunity to examine the proposed plan, and the trustee and creditors will be given a time in which they may disagree to the proposed reorganization plan. The bankruptcy judge will decide any disagreement. If the charitable donations fall within the requirements of the Charitable Donation Act, then the Court is likely to approve of the reorganization plan.
Please be aware that large charity donations immediately prior to filing bankruptcy or while in bankruptcy may be reviewed the Court or trustee. If these donations are considered to have been made in an attempt to deny assets that could be used to pay creditors or made to individuals or groups that are not religious or charitable in nature, then the donations may be required to be returned and then paid over to creditors. Also, if you pledged 15% of your income on your budget in your bankruptcy and an audit finds that you spent those funds on expenses that are generally not allowed under bankruptcy, such as gambling, or making payments for expenses for non-dependents, then the Court is highly likely to act harshly in handling the situation. On the positive side of making charitable donations while in bankruptcy, they will still be tax deductible. All these topics are ones that your Montgomery, Selma, and Central Alabama bankruptcy attorneys at The Sellers Law Firm will be able to guide you through.
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