Court Rules that Credit Cards Get Money Before Churches and Charities Per Bankruptcy Reform Law

Thou shalt have no gods before me … except for MasterCard, Visa and American Express.

That’s the way the United States Bankruptcy Court for the Northern District of New York is reluctantly interpreting the controversial U.S. bankruptcy reform law that went into effect last October. The court says those going through bankruptcy may not tithe to their church or make other charitable donations … until after they have paid off credit card companies and other creditors. Before the new law went into effect, bankruptcy court judges were required to permit debtors to tithe a portion of their income on a regular basis. The 2005 law could have a major impact on the large number of Christians and members of other faiths that are called upon to tithe a portion of their income on a regular basis. More than two million Americans filed for bankruptcy protection in 2005, and hundreds of thousands will do so during 2006.

Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys (NACBA), said: “For religious Americans who find themselves deeply in debt due to job loss, catastrophic medical expenses or other circumstances, the 2005 reform legislation didn’t just reword the federal bankruptcy code, it also effectively rewrote Exodus and Deuteronomy. Many who practice their faith and believe that they are bound by creed to tithe a portion of their income will find that Congress effectively decided that what credit cards want is more important than the deeply personal religious practices of Americans.”

Sommer added: “Our nation’s founding fathers who envisioned a separation of church and state never imagined that this division would be used to engorge the profits of moneylenders at the expense of churches.”

In the case, the debtors, Frank and Patricia Diagostino, filed chapter 13 bankruptcy on March 1, 2006. In the paperwork required under the means test, the debtors listed a monthly expense of $100 for “continued charitable contributions.” This expense would reduce the disposable income available to pay unsecured creditors from $80,351.25 to $74,351.25 (at the rate of $100 per month for five years).

The trustee in the Diagostinos’ case objected to the expense. The 2005 bankruptcy reform law enumerates several “reasonably necessary” expenses that are allowed, such as health insurance and disability insurance, but does not mention charitable contributions as such. According to the IRS guidelines which dictate permissible expenses in bankruptcy, charitable contributions may be included under the category of “other expenses” only in very limited circumstances, such as being a minister with an employment contract requiring tithing.

In his August 28, 2006 opinion (In re: Diagostino and Diagostino, Case No. 06-10384), U.S. Bankruptcy Judge Robert E. Littlefield, Jr. ruled: “This change [under the 2005 law] effectively closes the door for debtors who are above the median income from deducting charitable contributions as an expense unless they can establish the contributions fall under the IRS guidelines. The court does not agree with this awkward, bifurcated Congressional framework which makes charitable giving easier for some debtors and not others. Whether tithing is or is not reasonable for a debtor in bankruptcy is for Washington to decide. However, consistency and logic would demand the same treatment of all debtors … Until Congress amends [the 2005 Act], the court’s hands are tied and the tithing principles that this court once applied pre BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) have been effectively mooted.”