Sen. Chuck Grassley of Iowa introduced the legislation last year. His proposal responded directly to a number lawsuits filed by creditors attempted to recoup past debts. A 1992 federal court decision prompted these suits by allowing a bankruptcy trustee to recapture thousands of dollars of tithed donations to a Minnesota church.
In addition to protecting from federal bankruptcy courts the donations made to a church through tithing or to a tax-exempt charity through an established pattern of giving, the Religious Liberty and Charitable Donation Protection Act also restores the right of debtors to tithe and give charitably after declaring bankruptcy under Chapter 13. Chapter 13 allows debtors to re-pay a portion of their debts. Previously, bankruptcy judges had interpreted Chapter 13 to allow debtors to budget for entertainment expenses — including movies, restaurants and gambling — but not for the collection plate at church or a charity of one's choice. The legislation sponsored by Grassley was written so as to prevent any debtor who engages in fraud under the guise of tithing or other giving from shielding assets from creditors by way of charitable giving.
Grassley said that the code had put churches and charities at an unfair disadvantage. Already operating in many cases entirely on contributions without any significant reserve funds, churches and charities were being held responsible for debt they had nothing to do with, targeted by bankruptcy trustees because they were without resources to fight in court, and put in a position to check the financial background of contributors to protect themselves against a future lawsuit.
In September 1997, Grassley held a hearing to consider this problem as chairman of the Senate Judiciary Subcommittee on Administrative Oversight and the Courts. The subcommittee has jurisdiction over bankruptcy policy. The full Senate approved the Grassley bill in May 1998. The House voted in favor of Grassley's tithing and charitable donations bill, as well as a bill sponsored by Rep. Ron Packard of California in June 1998.
"One of our most important constitutional liberties in America is freedom of religion. The new law ensures that bankruptcy judges will no longer be required or allowed to un-do a voluntary act of worship in the way of tithing, as described in the Bible," Grassley said.