Will bankruptcy ruling limit Utah tithe-payers?

Will bankruptcy ruling limit Utah tithe-payers?

By Dave Anderton
Deseret Morning News
A New York federal judge has ruled that some people going through
bankruptcy may not make charitable or religious contributions.
The ruling last week by Judge Robert E. Littlefield in U.S. Bankruptc=
y
Court for the Northern District of New York could affect whether hundreds o=
f
Utahns who file for bankruptcy protection each year will be prohibited from
paying tithing or other contributions while they are in bankruptcy. At one
filing per 39.5 households in 2005, Utah ranks No. 3 nationally in
bankruptcy filings.
The Religious Liberty and Charitable Donation Protection Act of 1998,
signed by President Bill Clinton, allowed tithing and charitable giving
under the federal bankruptcy code. But a new bankruptcy reform law that wen=
t
into effect last year has clouded whether such donations are permitted.
According to Kevin Anderson, standing Chapter 13 trustee in Salt Lake
City, the New York ruling will have no effect in the short term for debtors
filing for bankruptcy in Utah. Anderson added that bankruptcy judges in Uta=
h
are favorable to allowing debtors to make charitable contributions as it
relates to the 1998 law. To date, no one in Utah has objected to bankruptcy
filers making such contributions.
"Congress went to all this effort to pass the Religious Liberty Act o=
f
1998 to make charitable contributions allowed," Anderson said. "I don't
think Congress undid that with the new bankruptcy amendments."
But Henry Sommer, president of the National Association of Consumer
Bankruptcy Attorneys, an organization that represents debtors, said the New
York ruling could offer creditors ammunition in challenging bankruptcy
debtors who choose to make charitable contributions.
Members of The Church of Jesus Christ of Latter-day Saints are
expected to pay 10 percent of their gross income to the church. Roughly 30
percent of Utah bankruptcy filers make at least some charitable
contribution, Anderson said.
"It's not just LDS," Anderson said. "That's far and away the majority
of it. We see it from lots of different churches."
Debtors who elect to pay tithing while going through bankruptcy must
provide proof that they are making the contribution as part of a monthly
budget submitted to the court. Contributions may not be more than 15 percen=
t
of a filer's gross income and are accepted as a reasonable living expense.
Prior to the Religious Liberty Act of 1998, bankruptcy judges allowed
debtors to budget for entertainment expenses =97 including movies, restaura=
nts
and gambling =97 but not for the collection plate at church or a charity of
one's choice, according to a statement by Sen. Chuck Grassley, R-Iowa, who
sponsored the 1998 legislation.
"Many who practice their faith and believe that they are bound by
creed to tithe a portion of their income will find that Congress effectivel=
y
decided that what credit cards want is more important than the deeply
personal religious practices of Americans," said Sommer, who added that the
new law places credit card companies over churches.
But Mark Swan, a Salt Lake attorney who represents creditors, said th=
e
New York ruling will have little effect on unsecured creditors =97 like cre=
dit
card companies =97 in recouping more money from debtors.
"Unsecured creditors are only going to get cents on the dollar," Swan
said. "They usually don't have enough of an economic interest to be waging
these kinds of battles and nitpicking at these plans."
Swan said he believes bankruptcy filers have a duty to pay their
creditors first.
"I don't think God expects us to cheat our neighbors to accomplish Hi=
s
means," Swan said. "It is somewhat hypocritical to tell someone you're goin=
g
to stop paying them to pay God."
In the New York case, the debtors, Frank and Patricia Diagostino,
filed for chapter 13 bankruptcy protection on March 1. In their paperwork,
the debtors listed a monthly expense of $100 for "continued charitable
contributions." The bankruptcy trustee objected to the contributions on the
basis they were not allowed under a so-called "means test."
By not allowing the couple's $100 monthly charitable contribution, th=
e
amount of income available to unsecured creditors increased by roughly
$6,000. Because the Diagostinos made more than the state's median income
level, the 2005 bankruptcy law prohibited the payment of charitable
contributions. Had the couple made less than the state's median income, the=
y
would have been allowed to make the contributions.
"Whether tithing is or is not reasonable for a debtor in bankruptcy i=
s
for Washington to decide," the judge ruled. "However, consistency and logic
would demand the same treatment of all debtors."