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Tithing Overheats

posted by Bob Lawless

There has been a heated press release and news coverage (Wash. Times, Salt Lake Tribune, Albany Times-Union) about a case called In re Diagostino. The bankruptcy court in Albany, New York, ruled that the Diagostinos could not make a charitable contribution of $100/month but instead had to pay that money to their creditors in chapter 13. This case has been cited as yet another example of the problems with the 2005 bankruptcy amendments. Your creditors now come before your church! No more tithing in chapter 13! What's next? Didn't the Republicans know they were taking money from churches and giving it to the credit card companies? For shame, Doc.

The hype on the Diagostino case seems a little overblown. I'm no fan of the 2005 bankruptcy amendments. Never have so many been bought by so few for so much. That act could be the poster child for campaign finance reform. On this one, however, I'll give the 2005 amendments a pass.

First, the facts of the case do not support the rhetoric. The Statement of Financial Affairs, which is filed in every bankruptcy case, asks the debtor to list all charitable contributions made in the year before filing. The Diagostinos responded "None," making them not the first set of debtors to discover a sudden interest in charitable giving after filing bankruptcy. Also, the Diagostinos proposed to give $100/month in charitable contributions. There is no indication in the judicial opinion that the contributions were intended for a church. Indeed, the words "tithe" or "church" do not appear in the opinion, although the reasoning in the opinion would apply to tithes and church contributions. This is simply not a case of a couple with a long history of making charitable contributions to a church suddenly being deprived of this right in bankruptcy.

Second, I am not known for my sympathy toward unpaid consumer lenders, but when one donates to a church or charity at the expense of creditors, one is not giving. The ethic of charity is to give of oneself. One of my favorite law review pieces is an essay by Dan Keating about the ethics of charitable giving in bankruptcy. As he writes:

What has always puzzled me . . . is why debtors do not view their insistence on tithing while insolvent as simply trading one sin for another. I realize there is no "standard" Christian doctrine, but most Christian churches consider the Bible to be at least a primary source of moral and spiritual guidance. And just as the Bible supports the notion that its adherents ought to tithe, it also makes clear that repaying one's legal debts is a significant moral obligation.

Daniel Keating, Bankruptcy, Tithing, and Pocket-Picking Paradigm of Free Exercise, 1996 U. Ill. L. Rev. 1041.

Third, on the doctrine, the judicial opinion is a plausible reading of the bankruptcy statute. It certainly is a literal reading of the statute. This is not the place to get into whether section 707(b)(2)(A)(ii)(I) incorporates section 707(b)(1) or what parts of section 1325(b)(2)(A)(ii) are covered by the income test in 1325(b)(3)(A). There are a lot of cross-referenced sections, and we have had a few posts suggesting the 2005 bankruptcy amendments were not the most artfully drafted provisions in the history of Western legal thought. (OK, there have been more than a few such posts.) For present purposes, suffice it to say that a reading of the statute that considered the Bankruptcy Code as a whole might have come to a different conclusion. For example, if the Diagostino opinion is correct, then high-income chapter 13 debtors no longer can pay the expenses of their business. That cannot possibly be what Congress intended as it would remove the ability of self-employed persons to fund a chapter 13 plan.

If you want to read the Diagostino opinion for yourself, I have made a copy through the Credit Slips site. I could not find the opinion posted on the New York bankruptcy court's web site. Click below

Download diagostino.pdf

UPDATE (9/22): For some reason, I am having trouble downloading the file with Mozilla Firefox, but I have no problems with Internet Explorer (sigh). Try Internet Explorer if you have trouble with the download.


Just one example of the manner in which BAPCPA's provisions run contrary to the obvious intent of the bill's proponents. Congress should be ashamed. I don't completely agree with the policy choices made in BAPCPA, and I certainly do not embrace the language and structure employed in the Act. And I'm on the creditor side of the aisle!!!

I'll say it again. Many of the judicial decisions which are derided as being "activist" are actually the result of exceedingly poor drafting by the legislature. Too often judges are forced to edit statutory language because, as written, it is vague (at best) or down-right absurd.

One of the primary reasons for law is to bring a high degree of predictability to a particular activity. You may do X, you may not do Y. If you do Y, Z happens to you. As it is written, BAPCPA has numerous provisions under which debtor, creditors, lawyers and judges cannot discern what course of action Congress intended as permissible. Low predictability means higher expense, and ultimately failure of the statute's intended purpose.

Keep shouting from the mountains. Perhaps someone in Washington will hear.

The new law (Pub L No 109-439) overruling Diagostino is just plain bad policy. It was sponsored by Senators Hatch and Obama.

A main purpose of bankruptcy is to provide an orderly mechanism for paying at least some portion of the unsecured DEBTS. Charitable donations and tithes are discretionary gifts. Why should discretionary gifts to charities or churches be allowed to reduce the payments under a chapter 13 plan to CREDITORS? And this is truly tithing on steriods. Biblical tithing is based on 10 percent of income, but the tithing permitted under this new law is equal to 15 percent of GROSS income. Second, the USA is not a theocracy. Why should Old Testament concepts of tithing be enshrined in the bankruptcy code? And why does the new law not have any EFFECTIVE DATE? Did Congress sub silentio adopt Senator Hatch's view that Diagostino was incorrectly decided and thus the new law, being merely a "clarification" of existing law, is retroactive, thus applicable to bankruptcy cases filed before the new law was enacted (Dec 20, 2006)? I would say, to the contrary, that because the court case was overruled, the new law should apply only PROSPECTIVELY to bankruptcy cases filed after the date of enactment.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.