By Ryan C. Wood
Yes, yes you can continue to make charitable contributions depending upon the amount donated. There are all kinds of charities to donate to. The charity also must be a valid tax-exempt entity. Never forget you may also give the gift of life with blood donations. The most common charitable contribution is the church. The Religious Liberty and Charitable Donation Protection Act of 1998 provides a Bankruptcy Court is not supposed to engage in any analysis to determine if charitable contributions up to 15% are reasonable and necessary for the bankruptcy filer’s maintenance and support. So bankruptcy attorneys everywhere note up to 15% is rubber stamped as reasonable and necessary for maintenance and support of the bankruptcy filer. If the donation is over 15% it is presumptively an abuse without further explanation and justification.
Religious Liberty and Charitable Donation Protection Act of 1998
This Act according to the legislative history was intended to “protect the rights of debtors to continue to make religious and charitable contributions after they file for bankruptcy relief.” H.R. REP. No. 105-556 (105th Cong.), reprinted in F L. KING, COLLIER ON BANKRUPTCY App. Pt. 41( o)(ii)(A), at App. Pt. 41-260 (15th ed. rev. 1999). There is nothing ambiguous about this or the language of Section 1325(b). Sometimes Courts determine the language of a statute is ambiguous to look to legislative history to determine what was meant.
What If I Increase or Decrease My Donation Prior To Filing For Bankruptcy?
In re Cavanagh, 250 B.R. 107 (9th Cir. B.AP. 2000) Under the amendments made to § 1325(b)(2)(A) by the Religious Liberty and Charitable Donation Protection Act of 1998, “a court is not supposed to engage in a separate analysis to determine whether charitable contributions up to fifteen percent are reasonably necessary for the debtor’s maintenance and support.” However, a Court should look at the debtor’s purpose in commencing or increasing the amount of tithing on the eve of or shortly after filing for bankruptcy to make a determination as to reasonableness. Bankruptcy attorneys these days have limited options to make changes to the financial condition of clients prior to filing for bankruptcy protection. There is just too much gray area when maximizing exemptions as the Ninth Circuit says is allowable or increasing charitable contributions prior to filing.
Drummond v. Cavanagh (In re Cavanagh), 250 B.R. 107, 111-15 (9th Cir. B.A.P. 2000) (wording of § 1325(b)(2)(A) permits confirmation of a chapter 13 plan in which debtors begin tithing upon filing of the petition).
The Statement of Financial Affairs is a required document that must be filed when seeking relief under the Bankruptcy Code. There is a section regarding gifts and/or charitable contributions.
The United States Supreme Court has repeatedly declared, including in cases interpreting the Code, that “when the statute’s language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms.” E.g., Lamie v. United States Trustee, 540 U.S. 526, 534 (2004).
Are Charitable Contributions Fraudulent Transfers?
Fraudulent transfers are transfers of assets prior to a bankruptcy case being filed for less than fair market value or received nothing in return. Before the Religious Act in 1998 many courts did view prepetition charitable donations as avoidable fraudulent transfers under Section 548. Section 548(a)(2) provides:
(2) A transfer a charitable contribution to a qualified religious or charitable entity or organization shall not be considered to be a transfer covered under paragraph (1)(B) in any case in which-(A) the amount of that contribution does not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the contribution is made; or(B) the contribution made by a debtor exceeded the percentage amount of gross annual income specified in subparagraph (A), if the transfer was consistent with the practices of the debtor in making charitable contributions.
In the Cavanah case the trustee involved argued that the 15% charitable contributions are not reasonable and necessary given the debtor had no previous history of making charitable contributions. How can the donations now be reasonable and necessary for maintenance and support of the donations are new? The Court said no, it is a maxim of statutory interpretation that “[t]he plain meaning of legislation should be conclusive, except in the rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” United States v. Ron Pair Enters., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (citation and internal quotation marks omitted).
The Religious Act of 1998 amending Section 1325 makes no distinction between whether the charitable contribution previously existed before the bankruptcy case was filed. There is no language regarding new or increased charitable contributions compared to what donations existed prior to filing for bankruptcy protection. Prior to the Religious Act of 1998 there were a line of cases held newly or increased charitable contributions could be deemed not reasonable and necessary given the donations did not previously exist. See In re Buxton, 228 B.R. 606, 609 (Bankr. W.D.La. 1999). The Ninth Circuit Bankruptcy Appellate Panel held no, the Religious Act of 1998 overruled this line of cases.
The issue is the bankruptcy filers “disposable income” as defined as that income which is not reasonably necessary for the “maintenance or support of the debtor or a dependent of the debtor, including charitable contributions . . . to a qualified religious or charitable entity or organization . . . in an amount not to exceed 15 percent of the gross income of the debtor.” 11 U.S.C. § 1325(b)(1)(2)(A).
In the Cavanah case the debtor proposed to pay creditors only 3% of his disposable monthly income, or that is all his monthly disposable income, after paying necessary and reasonable for his maintenance and support. A 15% of gross income charitable contribution is far more than the 3% proposed payback. In dollars the monthly contribution to creditors was around $330.00 a month while the charitable contribution alone was $280.00 a month. If the charitable contribution did not exist the debtors disposable income would increase by around 100% or around 6% rather than 3%. The Court held this is okay given the amount is less or equal to the 15% limitation and there is nothing in the statutory framework distinguishing between new or increased donations.
