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
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