Academic journal article Missouri Law Review

Bankrupting the Faith

Academic journal article Missouri Law Review

Bankrupting the Faith

Article excerpt

TABLE OF CONTENTS  I.   INTRODUCTION II.  IDENTIFYING RELIGIOUS BANKRUPTCIES      A. Methodology and Data        Table 1: Ten Jurisdictions with Greatest Percentage of        Religious Organization Filings During Study Timeframe      B. Characteristics of Faith-Based Organization Debtors        Table 2: Main Operation Type of Unique Religious        Organization Chapter 11 Debtors        Table 3: Financial and Other Characteristics        of Religious Organization Chapter 11 Debtors III. EFFICIENCIES AND OUTCOMES      A. Responsive Bankruptcy Courts        1. Identifying the Doomed to Fail          Table 4: Months to Disposition of Religious          Organization Chapter 11 Debtors' Cases        2. Influence of Debtors, Creditors, and Other Parties          Table 5: Party Filing Successful Motion to Dismiss      B. Varieties of Outcomes        Table 6: Outcomes of Religious Organization Debtors ' Cases IV.  KEEPING THE FAITH      Table 7: Main Precipitators of Filing, Religious Organization      Debtors' Cases with Plans      A. Coping During the Great Recession      B. Resuscitating a Failing Congregation      C. Benefits of Chapter 11 V.   IMPLICATIONS FOR CHAPTER 11 VI.  CONCLUSION 

I. INTRODUCTION

"As a pastor, God trusts you with the spiritual guidance of His people and the handling of His money."--Dave Ramsey (1)

Why would a church, synagogue, or religious school seek to reorganize under the Bankruptcy Code? What do their filings reveal about the use and effectiveness of Chapter 11? Before a string of Roman Catholic dioceses sought bankruptcy protection to handle litigation stemming from sexual abuse allegations, (2) the notion of religious organizations (3) filing for bankruptcy perhaps seemed unfathomable. (4) Nonetheless, between 2006 and 2011, faith-based institutions located throughout the United States filed over 500 petitions under Chapter 11. (5)

One of the most publicized filings was that of Crystal Cathedral Ministries, (6) the home of the internationally-distributed televangelist show and North America's longest running televised church service "Hour of Power." (7) Crystal Cathedral Ministries' road to bankruptcy began with the retirement of its founder. (8) The replacement pastor resigned after three unsettling years during which the church experienced unrest and member attrition. (9) Throughout these years, the economic downturn also took its toll, and between 2008 and 2010 Crystal Cathedral Ministries' gross revenue plummeted from almost $55 million to below $25 million. (10) By the time it filed under Chapter 11, nearly a dozen creditors had instigated lawsuits against it for unpaid debts. (11)

However, Catholic dioceses and megachurches are not the only religious institutions seeking to reorganize. (12) Instead, they are the minority. (13) This Article presents the results of a comprehensive empirical study of faith-based organizations that filed under Chapter 11 from the beginning of 2006 to the end of 2011, culled from a review of over 60,000 bankruptcy petitions. (14)

This Article examines the institutions' characteristics, reasons for filing, and case outcomes to investigate what benefits Chapter 11 brings to the organizations and whether bankruptcy is an effective solution to their financial problems. Based on the successful reorganizations and continued operations of some of the debtors in the study, it finds that Chapter 11 has the potential to provide a productive means for addressing their financial problems by offering religious organizations an avenue to rehabilitate their operations following economic downturns, failures and transitions in leadership, and standstills in negotiating with creditors. (15) In exploring these Chapter 11 cases, this Article not only reveals the previously unreported prevalence of religious organizations' bankruptcies, (16) but it also adds to only recently developing scholarly discussions of nonprofit bankruptcies, (17) providing groundwork for future consideration of the Code's application to nonprofit entities. …

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