I. Introduction
The financial challenges faced by religious institutions, particularly churches, within bankruptcy proceedings raise significant legal and societal questions. Traditional bankruptcy assessments prioritize immediate business operations and asset liquidity, emphasizing revenue generation and creditor recoveries. However, churches, unlike commercial enterprises, derive their sustainability from congregational support, spiritual services, and historical and cultural significance. The rigid financial assessment in bankruptcy law often overlooks these critical aspects, making it more difficult for churches to obtain relief under Chapter 11.
This article argues for an expanded definition of "going concern" in bankruptcy law to account for the enduring religious and community functions of churches. Unlike for-profit entities that may restructure or dissolve based on market conditions, churches serve as permanent institutions providing social outreach, education, and charitable support. Recognizing these distinctions in bankruptcy proceedings could lead to more equitable restructuring options, ensuring that the continued existence of churches is not solely determined by short-term financial metrics but also by their broader societal contributions.
II. The Need to Expand the Definition of Going Concern for Churches
A. The Distinct Nature of Religious Institutions
Churches are more than places of worship; they are longstanding sites of religious and cultural continuity. Particularly in historically marginalized communities, they serve as social and economic anchors. Unlike traditional businesses, their dissolution impacts entire communities, affecting spiritual continuity, historical preservation, and civil rights activism. The prevailing bankruptcy framework, however, fails to account for these broader social roles.
B. The Limitations of Current Bankruptcy Law in Addressing Religious Permanence
Bankruptcy law primarily protects creditors while offering debtors a structured means of resolving financial distress. However, its rigid financial viability tests fail to acknowledge the distinctive role of religious institutions. A more nuanced approach should include alternative valuation methods that incorporate non-monetary assets, ensuring that bankruptcy proceedings do not disproportionately threaten churches.
Historical and Cultural Significance of Religious Sites
Religious institutions often serve as historic landmarks. Yet, bankruptcy courts rarely consider their cultural value, leading to the loss of heritage and congregation displacement. A reformed legal framework could mandate historical assessments before liquidation.
Community Reliance on Churches for Social Services
Beyond spiritual functions, churches act as hubs for social activism, emergency relief, and education. Courts should consider community impact when determining a church’s eligibility for restructuring rather than liquidation. A test could be devised whereby if a church's liquidation would directly harm community institutions, its going concern value should reflect those losses.
Religious Doctrine and the Sanctity of Worship Spaces
Many religious traditions hold that places of worship are sacred. Courts should incorporate theological expert testimony in bankruptcy proceedings, ensuring that financial distress does not disrupt religious communities.
Toward a More Inclusive Bankruptcy Framework
Expanding legal considerations to reflect these factors would better balance creditor interests with the fundamental role churches play in society. Legislative precedents such as the Religious Land Use and Institutionalized Persons Act (RLUIPA) provide a model for ensuring that financial distress does not unduly burden religious institutions.
C. The Role of Lending Practices and Secured Creditors
Addressing Aggressive Lending Practices
Churches often face restrictive loan terms and higher interest rates, particularly those serving marginalized communities. Current bankruptcy laws fail to recognize the non-monetary value of churches, exacerbating financial vulnerability. Legislative reforms should address discriminatory lending practices and promote fairer loan terms.
(a) Extended Repayment Structures Considering Long-Term Donor Commitments
Churches rely on communal financial support rather than consistent revenue streams. A more equitable approach would involve extended repayment plans accounting for long-term donations, aligning with policies in other sectors, such as student loan repayment models.
(b) Mandatory Mediation Requirements Before Foreclosure Proceedings
Mediation has been effective in landlord-tenant disputes and homeowner foreclosures. Implementing similar requirements for religious institutions would provide churches the opportunity to negotiate debt restructuring before facing liquidation.
(c) Protections for Sacred Sites, Preventing Commercial Asset Treatment
Many religious traditions consider places of worship sacred. Legal protections, modeled after historic preservation laws, should prevent churches from being treated purely as commercial assets in bankruptcy proceedings.
Toward a Fairer Legal Framework
A more balanced approach would recognize churches not just as debtors but as pillars of society deserving legal protections that reflect their unique role in fostering community stability and religious expression.
III. Conclusion
Expanding the legal definition of "going concern" in bankruptcy law to incorporate the religious, historical, and community significance of churches would create a fairer framework for restructuring. The current system, designed primarily for commercial enterprises, does not adequately account for the social and cultural roles religious institutions play. By implementing reforms that recognize the broader impact of church closures, lawmakers and courts can ensure that bankruptcy law serves both financial and communal interests, preserving religious institutions as integral components of societal stability.
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