If I file Arizona bankruptcy can I still make charitable donations?
Giving to charities and religious institutions is an important part of many people’s lives. Giving is an important spiritual component in many religions and plays an important role in funding a variety of important social projects. It is important to know that Congress has recognized the importance of such charitable donations and has allowed persons filing for bankruptcy to continue to make such donations under certain circumstances.
Charitable Donations Made Prior to Bankruptcy
One thing the drafters of the bankruptcy code were worried about is that some dishonest people would try to hide their assets by transferring these assets to other persons before they filed bankruptcy. Such transfers are known as “fraudulent transfers” and are void under many circumstances. If a transfer is “void”, it means that the trustee will be able to recover the money or property from the person it was transferred to. While some argued that this also should include charitable contributions, Congress granted an exception to charitable contributions under section 548(a)(2).
However, there are certain limitations on the AMOUNT that can be given to a qualified charitable or religious entity. In general, you may give up to 15% of your gross annual income to charity and it will not be considered a “fraudulent transfer”. For example, in 2010 Mrs. Jones earned a gross income of $50,000. This means that she could have given up to $7,500 (15% of $50,000) to a charitable or religious entity.
Finally, the law allows you to contribute more than 15% only if you can prove that your giving of over 15% is consistent with your previous giving practices. For example, if Mrs. Jones has consistently given $10,000 over the past 5 years, which would be 20% of her income, she would still be allowed to give this much without the gift being seen as a “fraudulent transfer.”
Charitable Donations Made After Bankruptcy
After you have completed a Chapter 7 bankruptcy in Arizona you are free to give whatever amount you want to charitable or religious entities. There are no limitations! The same is true once you have COMPLETED your Chapter 13 plan.
However, DURING a Chapter 13 Arizona bankruptcy, you must commit to a payment plan where you give your “disposable income” to your unsecured creditors each month for the length of the plan. Again the bankruptcy code has made an exception for charitable or religious contributions, allowing you to include in your expenses charitable donations of up to 15% of your gross income. Essentially this means that you will still be able to make your regular charitable contributions, up to 15%, while you carry out your Chapter 13 plan. If you have any more questions regarding how your charitable giving would be affected if you filed bankruptcy please contact a Tucson bankruptcy attorney.