Court Ruling Protects Gifts to Churches

A federal appeals court has reaffirmed that creditors may not recover gifts made to churches by donors who later declare bankruptcy.

The U.S. Court of Appeals for the Eighth Circuit had ruled previously that, under the Religious Freedom Restoration Act passed by Congress in 1993, such gifts could not be recovered from a church in a bankruptcy proceeding if such recovery posed a substantial burden on debtors’ free exercise of religion. But the Supreme Court ruled that Congress had exceeded its authority in approving the legislation as it applied to state law.

After rehearing the case, the circuit court ruled that the law is constitutional as it applies to federal law, and it reinstated its previous decision.

The case involves a couple who gave $13,450 to their church as a tithe during the year before they declared bankruptcy, in February 1992. The bankruptcy court and district court both held that the bankruptcy trustee could recover the money from the church.

With the circuit court’s ruling, “churches have regained a shield against creditors, but haven’t won the war,” said Steven T. McFarland, who directs the Christian Legal Society’s Center for Law and Religious Freedom. Mr. McFarland said he hoped Congress would pass legislation it is now considering to prevent creditors from suing churches to recover offerings made in good faith by parishioners who later went bankrupt.