A institution may declare bankruptcy? Typically, the answer to this query is """"yes."""" No """"church-like"""" congregation or religious organization is required to form a distinct legal entity in order to operate or assemble. The United States Constitution generally protects the autonomy of all """"churches"""" to operate as they see appropriate. Nonetheless, the vast majority of churches are """"incorporated"""" as a separate, legally recognized entity for taxation, accounting, and other significant purposes. Typically, only church entities of this level of complexity would possess church property or incur substantial debt. Any authorized church """"entity"""" may petition for bankruptcy.
Churches Have Two Bankruptcy Options: Chapter 7 or Chapter 11
Churches can generally only petition for bankruptcy under Chapter 7 and Chapter 11 of the United States Bankruptcy Code. Churches are not designated ""wages earners"" or ""persons"" as required by Chapter 13 of the bankruptcy code. Consequently, they cannot file for Chapter 13 relief to repair their mortgage situations. Only """"people"""" are eligible to petition for Chapter 13, not """"entities"""" Chapters 12 and 9 are also unavailable to congregations because they are reserved for ""family"" and municipal operations. Therefore, the bankruptcy options for churches are either liquidation under Chapter 7 or reorganization or liquidation under Chapter 11, which are more expensive.
Chapter 7 Bankruptcy and the Church
A church that requires a fresh start may find Chapter 7 bankruptcy beneficial. If a church is willing to lose all of its corporately-held assets, filing under Chapter 7 could be an option. Despite the fact that a church will typically lose all of its assets, it may be possible to establish a """"new"""" church entity (or entities) that could operate without being constrained by large debt loads. If a church can no longer afford a mortgaged building, it can typically return the building to the mortgage holder and establish a new entity for future use that is not burdened by the church's former debts. Keep in mind that a certified public accountant and bankruptcy attorney are required to guide any church through this process. In addition, even if a church """"needs"""" Chapter 7 bankruptcy and to establish a new entity, it is possible that a Chapter 7 filing will never be required for the old church entity, unless prior creditors engage in aggressive or unclear collection efforts. Consult a bankruptcy attorney and a certified public accountant regarding such matters.
Bankruptcy of a Church and Chapter 11
A church can file for Chapter 11 bankruptcy to reorganize their finances. Chapter 11 could reduce a church's mortgage obligations and reduce its unsecured debts to a fraction of their former total if it is experiencing financial difficulties. In the eyes of society, Chapter 11 is a """"better"""" solution than having a church that will ultimately fail and default on ALL of its obligations. Therefore, the church may be able to reduce all of its unsecured debt obligations to between 10 and 30 percent, while potentially reducing its mortgage balance to market value.
Keep in mind that it is much simpler to successfully complete Chapter 11 if you are ALREADY negotiating debt reductions with the mortgage company and other creditors. If you have already negotiated new terms with the mortgage company before filing Chapter 11 for a church, it is typically MUCH easier to get the remainder of the case approved by the court and the remaining creditors. In addition, remember that a Chapter 11 CAN stop a church foreclosure, but it is crucial to negotiate with the mortgage company (and explore other alternatives) BEFORE and UP TO THE POINT OF filing a Chapter 11 petition. Seek the advice of a bankruptcy attorney.
A New Regrettable Reality: Church Insolvency
Frequently, churches today bear substantial mortgages and other debt obligations. As church debt situations have worsened, church bankruptcies have become an unfortunate new reality. If your church requires bankruptcy assistance, do not hesitate to contact an experienced bankruptcy attorney.""
" - https://www.affordablecebu.com/
