October 22, 1998 | Read Time: 2 minutes
The U.S. Supreme Court has let stand a lower court’s decision that protects churches from having to pay back gifts from parishioners who later declare bankruptcy.
The Court’s refusal to review the case, made without comment, was in keeping with a federal law passed in June. The new law — the Religious Liberty and Charitable Donation Protection Act of 1998 — allows churches and other charities to keep contributions received from most donors who later declare bankruptcy.
Bankruptcy trustees have often sought the return of such gifts to help them pay back creditors. Under the new law, however, trustees must show that a donation had been made specifically to defraud creditors before the trustees could demand that the gift be returned.
In the case that was appealed to the Supreme Court, a Minnesota couple had given $13,450 to their church — Crystal Evangelical Free Church — as a tithe during the year before they declared bankruptcy, in February 1992.
The bankruptcy trustee who had been appointed to the case asked the church to give up the money it had received so that creditors could be paid back. But the church refused. The bankruptcy court and a U.S. District Court initially held in favor of the bankruptcy trustee.
But a federal appeals court in St. Paul took the opposite view and ruled that the church could keep the donation. The appeals court cited a 1993 federal law that said that gifts could not be revoked from a church in a bankruptcy proceeding if such recovery posed a substantial burden on debtors’ free exercise of religion. While the U.S. Supreme Court later ruled that the 1993 law could not be applied to state matters, the federal appeals court stood by its decision because it said the case involved federal bankruptcy laws.
The bankruptcy trustee then appealed to the U.S. Supreme Court, which put an end to seven years of litigation this month by declining to review the case (Julia A. Christians v. Crystal Evangelical Free Church, No. 97-1744).
Steven T. McFarland, who directs the Christian Legal Society’s Center for Law and Religious Freedom, called the Court’s action welcome news for all charities. “Being forced to return large donations received and spent a year or two prior could easily shut down many charities,” he said. “And running credit checks on your major donors is not conducive to warm donor relations.”
