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In a case watched closely by religious groups, a federal appeals panel here ruled that the Religious Freedom Restoration Act protects a church in its struggle to keep money tithed by a couple in the year before they filed for bankruptcy.

On Monday, a three-judge panel of the 8th U.S. Circuit Court of Appeals said that allowing debtors a fresh start and protecting interests of creditors lacked the compelling government interest required for a bankruptcy trustee to claim the money from the church.Since President Clinton signed the act in 1993, courts applying the law have ruled that the government has a compelling interest in enforcing participation in the Social Security system, maintaining prison security by regulating inmates' religious ceremonies and promoting school safety by banning the wearing of ceremonial knives on campus.

Courts have split over issues that arise when the act and the bankruptcy system collide. In its 2-1 ruling involving the Crystal Free Evangelical Church in New Hope, Minn., the 8th Circuit panel said keeping the bankruptcy trustee out of the church's offering plate would not undermine the bankruptcy system.

Senior Pastor Stephen Goold of the Crystal Free church said the ruling "is a milestone affirmation of personal religious freedom."

"It keeps the government's hand out of what rightfully belongs to the church," he said in a statement.

The church's lawyer, Kenneth Corey-Edstrom of New Brooklyn, Minn., said the ruling could affect about two dozen similar cases "now winding their way through the courts."

Richard Thomson, a lawyer in Minneapolis for the bankruptcy trustee, said he was disappointed by the ruling. He said he would study it before commenting further.

Supporters of the act, including co-author Sen. Orrin Hatch, R-Utah, had been upset that the Clinton administration initially backed the bankruptcy trustee in the Crystal Free case. The administration pulled out of the case the day it was argued before the 8th Circuit panel in 1994.

The Justice Department said it withdrew because Clinton decided that its position "adopted a narrower view of the Religious Freedom Restoration Act than his under-standing of the . . . statute."

Dist. by Scripps Howard News Service