Here is an article about a bankruptcy ruling out of New York that said a religious debtor was not allowed to use chartiable contributions as an expense; ergo, the debtor had to pay credit card debt for 5 years before he could again donate to the church. Click here for the full text of the decision. Most of the news articles on this don’t do a very good job of explaining what actually happened.
Many people have heard of the “means test” that is part of the new bankruptcy law (BAPCPA). Essentially what happens is that a debtor’s income is examined and if the debtor is above the median income for his state, the debtor has to use a set of IRS guidelines to determine whether the debtor has any disposable income that could be used to pay creditors. Debtors who are under the median income do not have to use the IRS standards. They use their actual expenses. The importance of what set of expenses you use is that if your expenses are more than your income, you qualify to file Chapter 7, and even if your expenses are less than your income, your expenses determine how much you have to pay per month in a Chapter 13. (This is a great oversimplification, but it states it in concise terms.)
Because of a furor over decisions like the Diagostino decision before BAPCPA, Congress enacted a law that allowed religious contributions to be counted as an expense. The Diagostino decision essentially says that by enacting BAPCPA, Congress undid that allowance for any debtor who is over median. So, now over-median debtors are not allowed to make charitable contributions while in a Chapter 13 case. Just for example, a single debtor in California is over median if he makes about $50,000 a year.
UPDATE: Orrin Hatch, a proponent of BAPCPA and senator from Utah, issued a press release stating his disagreement with the opinion. Then, he got a bill (Senate Bill 4044) passed by the Senate changing the law so that the Court’s ruling would be overturned. The bill has been sent to the house, but probably will not be considered soon do to the impending election. But to hear Senator Hatch talk about it, he’s saved the (tithing) world.
