How Does a Church File for Bankruptcy as per the U.S. Bankruptcy Code?
Classified as a commercial enterprise, a church can use one of two different types of bankruptcy, according to the U.S. Bankruptcy Code. A Chapter 7 bankruptcy allows a church to obtain a discharge–or elimination–of most, if not all, of its debt. The church stops operating in a Chapter 7 case.
A Chapter 11 bankruptcy permits a church to keep functioning. This proceeding allows a church the opportunity to restructure its debt and reorganize its finances and operations. The objective in a Chapter 11 case is to pay off most, if not all, of the church’s debt.
- Contact the clerk of the bankruptcy court in the district where the church is located. The U.S. bankruptcy court system is divided into judicial districts. Some districts follow state boundaries. Other states have multiple bankruptcy court districts within their borders. USCourts.gov provides information on the proper district for filing a church’s bankruptcy.
- Request the petition for bankruptcy form based on the type of case that appears to be most appropriate to the church’s financial situation. If the church has no reasonable hope of surviving, a Chapter 7 petition is appropriate. If intervention from the court will allow the church to carry on, a Chapter 11 case should be filed.
- Complete the petition for bankruptcy. Along with the forms, the clerk will provide detailed guidelines for completing the petition and other documents needed for the bankruptcy case. Unlike a consumer seeking bankruptcy relief, a church and its management team do not need to participate in a credit counseling and education program.
- Gather supporting documentation requested on the bankruptcy petition and associated guidelines. Examples of documents include the church’s tax filings, which demonstrate its not-for-profit status. Other documents include statements from the church’s financial accounts and information about the church’s real estate holdings, if any.
- Sign the bankruptcy petition.
Return to the bankruptcy court clerk to officially file the petition. A filing fee is paid at this time. The amount of the fee varies from one court to another and depends upon which type of case the church pursues. The clerk maintains current fee-related information.