The dilemma is as old as the Bible. Moses received the Ten Commandments, which direct, "Thou shalt not steal"; and the Old Testament prophet Malachi declared that man robs God by not paying tithes and offerings.
Balancing the payment of debts to an earthly creditor with the belief that mortals owe a monetary debt to God is causing controversy in U.S. bankruptcy courts. The problem appears to be growing as the numbers of bankruptcies rise.Critics warn that creditors are treading on sacred ground because federal bankruptcy trustees - who oversee debtors' repayments to creditors - now see churches as a new gold mine for funds. A growing number of cases target money contributed to churches by individuals who later file bankruptcy, according to Steven T. McFarland, director of the Christian Legal Society's Center for Law and Religious Freedom in Virginia.
In addition, people who've filed for bankruptcy are being denied basic religious liberties, critics say, because bankruptcy courts usually won't allow them to give contributions while they repay debts under Chapter 13 bankruptcy provisions.
Chapter 13 bankruptcy allows debtors to consolidate loans and repay debtors. Under Chapter 7 bankruptcy, debtors' assets may be liquidated and as many debts as possible paid. Generally, creditors often get little, if any, money in Chapter 7 filings.
Churches have recently been ordered to give up past contributions of a debtor under Chapter 7 because such contributions are defined as fraudulent giving under the law.
That law guides the work of Paul Toscano, Utah's federal bankruptcy trustee. From his perspective, debtors should be required to pay their debts and churches should be willing to turn over donations that were made by insolvent persons.
"Why should the church want ill-gotten gains?" he asked.
While there are few cases where Utah churches have been targeted by trustees, many members of The Church of Jesus Christ of Latter-day Saints pay tithing as a condition to qualify for worship in the church's temples.
Many Mormons feel they aren't in good standing with their church if they can't qualify for a temple recommend. It is also a problem for those of other faiths who feel obligated to contribute to their church, temple or synagogue.
"They feel almost like the government is taking away their eternal life. . . . They are taking away their opportunity to go to heaven," said Dave Berry, a Salt Lake bankruptcy attorney and a Lutheran, speaking of his LDS clients.
"It is the concept of the First Amendment. You should set apart religious contributions. You shouldn't treat them the same as a 401(k) (retirement plan) contribution," Berry said, noting that contributions to retirement plans are also barred under bankruptcy law.
While Toscano said one answer would be a change in the law to allow donations, he said he doesn't understand why churches insist on contributions from those in bankruptcy.
"I don't understand why they can't exempt people during the bankruptcy," Toscano said. "I think in Utah it is a Mormon problem, but I think with all religions that require some kind of donation to maintain church standing it is a problem."
When faced with the choice of remaining square with God or repaying debts, some have chosen a different course - Chapter 7 - so they can still tithe or contribute to their church. That choice may mean many of their creditors won't be repaid, according to bankruptcy attorney Phillip Dew.
Religious debtors may simply continue to make contributions even though they are mandated to follow a court-approved budget. While on its face it is illegal, some have decided it is the best way both to repay debts and continue to act according their conscience, said bankruptcy attorney Kevin Whatcott.
Whatcott, who also serves in an LDS bishopric, says he is torn by the situation. As a church leader he said he can understand the point of view of debtors who say they will scrimp on food and other expenses so they can afford to pay tithing within their court-approved budget. At the same time, if he learned of such a situation he said would encourage the individual to obey the law of the land.
Toscano also realizes that many debtors are likely to continue paying tithing, but he has little resources or willingness to audit every expenditure a debtor makes.
In Utah's bankruptcy court the only exceptions to the ban on religious donations in Chapter 13 reorganizations are given to employees of the LDS Church because they must qualify for a temple recommend, according to Dew. Toscano said there is latitude given to debtors, including making religious donations and making luxury purchases, if they plan on paying 100 percent of their debt within 36 months.
McFarland said the dilemma of many Utahns in bankruptcy is a classic reason he's pushing for reform of the bankruptcy law. He believes that any debtor should be allowed to continue to contribute to charity or church, even if such payments are not a condition of privileges in the church.
"We have a hierarchy of values in this country. Religious liberty is the first freedom in the First Amendment. This is more important than maximizing the recovery of funds for creditors," McFarland said. "The only interest the government has is making sure the contribution is sincere. Usually you show sincerity by a pattern of giving over time."
Religious freedom advocates also hope that Congress will correct the other troubling area in bankruptcy law - a trend toward going after contributions made to churches before bankruptcy filings.
Two bills, legislators believe will correct what they see as unfair treatment of religion have been introduced in Congress.
The issue came into the spotlight as a result of a 1992 Court decision where a bankruptcy trustee recaptured $13,500 in past tithes from a Minnesota congregation. The widely-cited case was appealed to the U.S. 8th circuit Court, which held that while the contributions where "fraudulent conveyances" they could not be pursued because of protections in the Religious Freedom Restoration Act.
At the time of the case's appeal, religious groups argued that the Religious Freedom Restoration Act should protect the contributions. The U.S. Supreme Court struck down the law last year in a case involving a state, and asked the 8th Circuit to re-examine the bankruptcy case. Religious groups argue that the Religious Freedom Restoration Act still applies to federal laws. The case is scheduled to be heard in December.
A key issue in that case was whether giving tithes and contributions was a constitutionally protected religious practice much the same as taking communion or attending church. Many churches, including the LDS Church, filed friend-of-the-court briefs in the case.