Hands Off the Offering Plate!

Oliver S. Thomas November/December 1998 Reverend Richard Steele is not a troublemaker. As the pastor of a church with more than 1,000 members and a budget of $650,000, he hardly has time for controversy. His days are spent comforting troubled souls and preparing next Sunday's sermon.

But he's no pushover, either. When, in an effort to recoup its losses, the creditor of a bankrupt parishioner went after the man's past tithes and offerings, Reverend Steele lived up to his name.

"Tithe and offerings are sacred," he said. "Creditors don't have a right to them."

The reverend and his Cedar Bayou Baptist Church were at the center of a national controversy over just how far creditors and trustees in bankruptcy should be allowed to go. Should they be permitted to order churches to pay back past tithes and offerings given and received in good faith? Reverend Steele says "Absolutely not."

The reverend chafes at the notion that secular businesses are entitled to more protection under bankruptcy laws than a church. A liquor store, for example, cannot be held liable by the creditors of a regular customer who goes bankrupt though he may have squandered thousands on overpriced booze. If the store sells its product and receives its money in good faith, it is a valid exchange. Yet churches are told that their members receive nothing of value in exchange for their contributions--contributions that would constitute "consideration" under bankruptcy laws. Thus the contributions are considered "fraudulent" and subject to being set aside.

"The rewards for giving to the church are both temporal and eternal," says Reverend Steele. "How could anyone consider that fraudulent?"

The reverend's questions notwithstanding, Cedar Bayou church has been ordered by a Texas court to pay back more than $40,000 including interest and penalties. Some of these funds represent contributions made to the church a decade ago!

The church is not without recourse, however. Texas courts, like those of the United States, have long recognized religion as an inalienable, fundamental right. Indeed, the Texas Constitution states: "No human authority ought in any case whatever, to control or interfere with the rights of conscience in matters of religion. ..." Yet the Cedar Bayou case infringes on this right to a degree few court decisions can match. Conceivably, every religious organization in Texas could have been affected.

Whether they be large or small, liberal or conservative, churches must have the assurance that funds given and received in good faith can be spent in furtherance of the church's mission. And it's not only churches that are affected. The same is true for the thousands of nonreligious charitable organizations that rely on donations for their financial support.

Because the Constitution forbids any law prohibiting the free exercise of religion, the Cedar Bayou decision was particularly noxious to churches. Fundamental to the free exercise of religion is the right of churches to carry out their mission and ministry without undue interference from the government. Nothing could be more essential to the exercise of this right than the churches' need to spend their resources secure in the knowledge that gifts given and received in good faith can be shared with others. Salaries must be paid, Sunday school literature bought, day-care centers staffed and operated, food pantries stocked. Without the knowledge that these transactions will be respected, churches are paralyzed.

The decision of the trial court did cast a pall over the legitimacy of every contribution made to a church. Whether it be the widow's mite or the corporate executive's millions, churches should not be forced to refund past tithes and offerings. If the Texas decision stood, a chill was likely to descend upon this most fundamental exercise of faith as churches begin to hoard funds in order to protect themselves against the likelihood that past creditors of one of their members might sue. After all, many churches have had members who have filed for bankruptcy, and most, if not all, of these members will have contributed to the church. The court decision could have taken what would have been inconceivable to churches just a few years ago to its most misbegotten extreme by allowing virtually any creditor to bypass the trustee in bankruptcy and go directly into state court in order to retrieve funds long since spent in the exercise of Christian ministry.

Fortunately, Cedar Bayou Baptist Church has the resources to fight this battle. Most churches do not. The average Texas congregation has a budget of less than $100,000 and a single staff person--the pastor. For many churches, such as the Baptists, each of these congregations is on its own and is unable to draw on a central fund to satisfy its financial obligations. A judgment of the size rendered against Cedar Bayou could easily bankrupt such a congregation, thereby infringing upon the rights of an entire community. At best, Texas churches will be forced to set aside substantial sums of money in direct conflict with their Biblical mandate to expend their resources in ministry and service to the community. Ultimately, of course, it is the larger community that will suffer. There will be less child care, less marriage counseling, fewer soup kitchens and shelters, fewer youth programs, and ultimately, less religion in the state of Texas.

The trial court's decision would appear to violate federal as well as state law. Even the U.S. Supreme Court's pinched interpretation of the free exercise clause set forth in the draconian Employment Division v. Smith appears violated. Although Smith did curtail the application of the traditional "compelling interest test" (which requires the government to demonstrate a compelling interest, such as public health or safety, before interfering with religious exercise), the Court retained the test in which (1) religion is intentionally burdened, (2) another constitutional right, such as freedom of speech or of the press, is implicated (i.e. a hybrid claim), or (3) the government has established a system of exemptions for nonreligious claims or activities.

Here at least two of the criteria have been met. First, other constitutional rights such as the rights of speech and association are clearly implicated. And second, the bankruptcy code is replete with individualized exemptions for such things as food, clothing, and even entertainment, which are placed beyond the reach of creditors. Having satisfied the Smith threshold, it seems unlikely that the government could demonstrate a "compelling" reason for treating churches less favorably than secular businesses.

This is not the first time a church has been ordered to refund past tithes and offerings in order to satisfy a member's debts. Numerous bankruptcy trustees have gone after the assets of a church, sometimes successfully. Professor Douglas Laycock of the University of Texas College of Law estimates that hundreds of these cases are pending nationwide. In short, even if Cedar Bayou Baptist Church were to win its case, the problem will persist. And what of the cost? No congregation wants to expend the tens, perhaps hundreds, of thousands of dollars that may be necessary to litigate one of these cases. A far better solution is to amend the bankruptcy code so that good-faith contributions made to a church are not considered fraudulent conveyances in the first place.

Fortunately, all these concerns have finally been addressed. In response to situations such as Cedar Bayou, Congress has passed the Religious Liberty and Charitable Donation Protection Act of 1998 sponsored by Senator Charles Grassley (R-Iowa) and Representative Ron Packard (R-Calif.). President Clinton signed it into law in June of this year. The act shields up to 15 percent of a person's gross income given to a church in good faith. The act does not protect gifts intended to place assets beyond the reach of creditors. Fraud in the name of religion is still fraud. The act, however, honors gifts made at a time when no one knew the parishioner was going bankrupt.

The Grassley / Packard bill is complicated by the fact that it will also protect church contributions made after bankruptcy occurs, thereby raising other constitutional concerns. Forcing creditors to subsidize a debtor's future religious obligations by having their payments reduced by the amount they give to their church may run afoul of the establishment clause, which forbids government promotion of religion. The problem may be alleviated by the fact that the proposed law--like the tax code--has been broadened to protect gifts made to nonreligious charitable organizations. Thus religion will not be the only beneficiary of the new law. Future gifts to the Girl Scouts, the YMCA, or other charities will also be permitted.

Perhaps a more equitable solution might have been to allow bankrupt parishioners to continue tithing, but only if they are willing to extend their payments so that creditors are not penalized. This seems to be the only way of assuring that the debtor alone shoulders the responsibility for their future tithes and offerings. The government should not force one person to assume the religious obligations that another person voluntarily chooses.

To his credit, President Clinton has also pushed the Justice Department to take up the cause of the churches in the courts. U.S. attorneys have filed numerous friend-of the- court" briefs urging courts to protect religious organizations from these intrusive efforts to set aside the legitimate contributions of their members. Attorneys for a church were successful in a recent case from Minnesota, but until Congress acted, more cases were being filed each week.

Meanwhile in Bayshore, Texas, a celebration is under way. Reverend Steele and his congregation will not have to wait until the state appeals court hears its plea and determines its fate. The plea has been heard and its fate determined by a higher "court," the court of public opinion--expressed in this nation's republican form of government.



President Clinton, on June 19, 1998, signed into law the Religious Liberty and Charitable Giving Protection Act of 1998. Here is his statement: "I was very pleased to sign today S. 1244, the Religious Liberty and Charitable Donation Protection Act. This bill protects the religious and charitable contributions made by people who later declare bankruptcy.

"As Americans, we value the important role religious and charitable institutions play in the daily life of this nation. Indeed, we know that fiscal responsibility for these institutions is fundamental to their efforts to meet the spiritual, social, and other concerns of our nation. It is a great loss to all of our citizens for creditors to recoup their losses in bankruptcy cases from donations made in good faith by our citizens to their churches and charitable institutions.

"As Americans, we also know that giving, whether to one's church, temple, mosque or other house of worship, or to any charitable organization, fosters and enriches our sense of community. We need to encourage, not discourage, that sense of community. The Religious Liberty and Charitable Donation Protection Act does just that."

Article Author: Oliver S. Thomas