The Religious Liberty and Charitable Donation Protection Act of 1998

Well!  Obviously I am not a bankruptcy professor, because if I were I would have already blogged about the Religious Liberty and Charitable Donation Protection Act.  Senator Grassley proposed the law in 1998 and Congress enacted it to prevent bankruptcy trustees from clawing back charitable donations made prior to filing the petition and to allow bankruptcy estates to continue to make charitable contributions after the filing of a bankruptcy petition.  So my previous posts about the FTX Bankruptcy Trustee's efforts to claw back charitable donations made by SBF  through the FTX Future Fund (which has apparently closed it doors after every one of its employees resigned) may not tell the whole story.  We have previously blogged about the potential clawback of FTX donations here and here.  It might be that charities are not required to return the donations after all.  Of course, there are more than just legal considerations to be had and some organizations might voluntarily return the donations for moral or PR reasons.  But a little knowledge can be dangerous because the act is not full proof protection against actual fraud -- i.e., the actual intent to cheat a creditor before or after the donation.  I don't know that there was actual intent to deprive a particular creditor, as opposed to SBF just being plain stupid and overly Pollyannaish about life in the fast lane.  Here is a snippet from a practice note:

Two sections of the code work together to protect past charitable contributions from being undone by a bankruptcy trustee for redistribution to creditors. Section [11 U.S.C.] 548(a)(2) excludes transfers of charitable contributions from the scope of the constructive fraudulent transfer statute, as long the contribution does not exceed 15 percent of gross income in the contribution year or is otherwise consistent with the debtor's past practices. This exclusion is important, as the 548(a)(1)(B) constructive fraudulent transfer statute can be invoked on showing of insolvency and lack of reasonably equivalent value, and such equivalence is nebulous for charitable gifts. Furthermore, section 544(b)(2) provides that non-bankruptcy federal and state law causes of action to avoid a transfer of a charitable contribution are preempted by the filing of a bankruptcy case, and are therefore unavailable to a trustee. The effect of these two code sections is to leave only actual fraud under 548(a)(1)(A) as a grounds to undo a charitable gift as a fraudulent transfer. Therefore, while a debtor cannot give money to charity for the purpose of keeping it from creditors, he or she can otherwise make normal gifts which can stand up through bankruptcy.

For more on this see Judicial Treatment of Charitable Donations in Bankruptcy Before and After the Religious Liberty and Charitable Contribution Protection Act of 1998 .

dkj