Assets Held By Charitable Organizations Are Safe From Claims or Creditors In Bankruptcy Cases … Or Are They?

By: Ileana M. Hernandez | Ivan L. Kallick | Jill S. Dodd
– Bloomberg BNA

A charity, fulfilling its charitable mission, is successful in raising money for a variety of worthy projects—rebuilding after a natural disaster, medical education and care, summer camp experiences for disadvantaged children, or financial support for senior centers. Everyone agrees that these are worthwhile charitable endeavors—except perhaps some might suggest, the United States Bankruptcy Courts. This article examines how assets donated of charitable organizations may be treated if such organizations were ever to file a bankruptcy resulting from significant creditor claims. There is some, yet limited, legal authority determining what is ''property of the estate'' in a bankruptcy. I. ''Property of the Estate'' in Recent Religious and Charitable Organization Bankruptcies Recent bankruptcy cases filed by Catholic dioceses and archdioceses have raised issues regarding the extent to which the assets of non-bankrupt Catholic entities should be available for payment of creditor claims. Recent bankruptcy cases arise where abuse victims make monetary claims for damages arising out of alleged improper or illegal conduct.

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