Many of my clients are extremely generous people. They manage to help their children, other family members, friends, and even strangers despite their own financial problem. Some have possibly exacerbated their financial situation by being too generous. But, generosity towards others should never be seen as a fault. The Bankruptcy Code recognizes this and provides some room for filers to maintain regular charitable contributions.
The Bankruptcy petition anticipates the possibility of charitable contributions. The Statement of Financial Affairs, part 14, asks if the debtor, within the past two years has, "give(n) any gifts or contributions with a total value of more than $600 to any charity." Any such large contribution must be disclosed to the Court. Frankly, contributions this large are rare in the bankruptcy context, as most people facing financial difficulties are not able to make such contributions. However, even if a large contribution was made, it should be deemed acceptable unless the Court has reason to believe it was made to hide assets. So, it should always be disclosed to your attorney so he or she can determine if it will be an issue.
Schedule J of the Bankruptcy petition, which is a list of monthly expenses for the debtor, asks in part 14 for "charitable contributions and religious donations". This should be used to disclose regular, ongoing contributions, such as weekly contributions to a church. Even tithing, the practice of giving 10% of your income to your church, should be permissible. However, in that case, or with any larger charitable contributions, you should be prepared to show that these contributions have actually occurred (in reality, not just in your heart), and have occurred regularly in the past, not just in the weeks leading up to filing bankruptcy. Once again, contributions must be regular, and not seen as an attempt to hide assets that could be used to pay your creditor.
The Chapter 13 means test also asks about charitable contributions, and allows for charitable contributions to be deducted from "disposable monthly income". This disposable monthly income determines how much money must be paid to unsecure creditors such as credit cards and medical bills. You may deduct regular contributions made to "qualified religious or charitable entities or organizations."
So, payments made to pay your lazy cousin's rent does not count as charity. Payments , to your church, or an organization such as The United Way will qualify, once again, assuming they are regular. Payments made to political candidates or campaigns may not be deducted, an important distinction in an election year (given the state of the current election, it sure FEELS like charity).
A final point to make is that charitable contributions must be in the form or money. Contributions of clothes or goods cannot be made from your disposable monthly income. Keep clear records of your charitable contributions and be ready to present them to your attorney.
Ongoing, regular charitable contributions should not prevent you from filing for bankruptcy, and assuming they have been regular in the months leading up to filing, they could even reduce the amount you must pay. Contact us if you want to discuss your situation. There are certain limits to charitable contributions the Court may not allow, you should discuss yours with an experienced bankruptcy attorney.