The bankruptcy code has some deep things to say about the nature of tithing. In order to understand why, we have to take a little detour through the nature of bankruptcy law and couple of technicalities in the code. Bear with me on this, and I promise that there are some fun questions at the end.
Personal bankruptcy is a way of starting over when you get mired in too much debt. Essentially you go into court and all of your assets (above some protected level) are sold off and the proceeds are distributed to your creditors. Then the court wipes clean the slate, releasing you from any further legal obligation for your debts. Your “excess” assets are gone but so are your bills. Since the creditors are faced with a limited set of assets to satisfy their claims, the real fights in bankruptcy law tend to be between creditors. There are basically two kinds of creditors: secured and unsecured. Secured creditors loaned the debtor money which was secured by some asset. The most familiar example is a home mortgage, where the home is pledged to satisfy the debt in the event that the debtor does not pay. The law, however, allows you to used practically any asset (including intangibles like accounts receivables) as security. Security interests are “good” in bankruptcy. This means that in bankruptcy the asset securing a creditor’s loan will be sold, but all of the proceeds from the sale of that asset go to the secured creditors. Unsecured creditors, in contrast, get a pro rata distribution of the proceeds from the sale of whatever assets are left over after the sale of unencumbered property.
Because all of the creditors’ rights are more or less fixed at the moment of filing bankruptcy, there is an incentive to shuffle around assets and obligations immediately prior to filing. For example, some unsecured creditors could demand security interests, which of course eats into the post-bankruptcy distribution to unsecured creditors. Alternatively, if you are on the brink of filing for bankruptcy, you might be tempted to transfer all of your assets to your sister as a way of beggaring your unsecured creditors. This is where we get into the law of “voidable preferences” and “fraudulent transfers.” Basically, the law looks back to the period immediately preceding filing for bankruptcy and voids transactions that transform an unsecured creditor into a secured creditor or transfer the bankrupt’s wealth in order to avoid debts. It gets more complicated than this, but these are two important points for our purposes. First, this body of law does not apply to new debt. Hence, if I borrow $1 million immediately before bankruptcy, that transaction stands. Second, it does not apply to purchases. If I go an buy a plasma TV the day before I file for bankruptcy or take a cruise, the law doesn’t do anything to those transactions.
So what if I pay tithing immediately before bankruptcy? Normally, large gifts of cash made while you are insolvent are voidable. You can buy stuff when you are broke, but you can’t give stuff away. However, in 1998 Congress, largely at the instigation of Sen. Orrin Hatch, added 11 U.S.C. 548(a)(2) to the bankruptcy code. This section exempts donations to religious institutions of up to 15 percent of annual income (enough for a full tithe and generous fast offering?) from the normally applicable law. In other words, if you give your sister $10,000 before you file for bankruptcy, the bankruptcy court is going to hit her with a judgment demanding that she pay it $10,000. If you write out a $10,000 check to your church before bankruptcy, it is safe.
Now there are a number of reasons for this special treatment. At the time, it was mainly pitched as a church protection act. If the church got the cash and then spent it before getting hit with the bankruptcy court’s judgment, it would have to come up with the cash to pay the judgment or have its assets attached. Not nice, a big pain. Of course, it is not nice and big pain for anyone else hit with these judgments. The other argument is that churches are such good institutions that we ought provide them with a bit of a break on this one. The problem, of course, is that the break comes at the expense of the debtor’s unsecured creditors. It is fine to encourage voluntary donations to charity, but should we really encourage donations with other people’s money?
Another justification, one that was not offered, is that people get value for paying tithing. Remember, if you buy something then the law doesn’t void the transaction. If tithing is a kind of purchase of spiritual benefits, then the law makes good sense. Spiritual benefits are simply quickly dissipated or difficult to liquidate assets. (Alternatively, we might think of them as part of the homestead exemption — the core of protected assets to guarantee that the courts don’t absolutely beggar someone — that creditors don’t have a right to.)
Finally, one might think of tithing as a payment on a pre-existing debt. God has given us everything and we are obligated to give something back to him. This approach, however, suggests a very different policy than that enshrined in the law by Sen. Hatch and company. If the debtor owes God, then he ought to be treated as a creditor in bankruptcy. Hence, we void the tithing payment, bring that money back into the bankruptcy pool, and give God a pro-rata distribution along with all of the rest of the unsecured creditors. Of course, God, like the government, might be entitled to a statutory lien in the bankrupt’s property, regardless of the other creditors.
Essentially, the bankruptcy code gives us three ways of conceptualizing tithing: as payment of a debt, as purchase of a service, or as a gift. The code treats it as a purchase. What say you?