Dealing With The Legal Consequences Of Being Broke

Posted on: 28 January 2015

If your church's leadership is considering filing for Chapter 11 bankruptcy, you need to remember your PEWS. No, the sturdy rows of benches for your congregants have nothing to do with reorganizing your church's debts. PEWS is the acronym for 4 key steps you must take to emerge from your Chapter 11 bankruptcy as a successful, vibrant church.

P is for PLANNING

You're not planning for eventual bankruptcy at first. You are planning to make decisions about your church's financial future.

In order to plan for decision-making, you'll need to gather your decision-making tools. You need to access, examine and add up your church's assets and its debts. Knowing the truth about your church's fiscal position will help you make the healthiest money choices.

You need accurate records concerning revenue streams, church investments, donations and weekly offering amounts. Your entire financial picture, from staff salaries to parish housing costs to utility bills, must be painted realistically on spreadsheets.

Be aware that after you file for bankruptcy, you will have to regularly report all of this information to the courts. It's best to prepare now by getting a handle on your records and on your record keeping.

E is for EMPLOYING

In order for any restructuring of your church's debts to work, you must employ a leader or several leaders who will rally the troops, raise funds with gusto and increase church membership. Remember, under Chapter 11, your church will be required to pay some secured debts and any taxes in full. You need to find a dynamic go-getter who will bring in plenty of future revenue to meet those obligations and all others imposed by the court.

Employ competent bookkeeping and financial staff to organize financial statements and to record all church transactions. You also need to employ an expert on your mother church or your denomination's hierarchy. You'll need to understand their rules governing church bankruptcy.

Also employ church leaders on your church's bankruptcy committee who will fairly consider all of your choices without bullying or stubbornness.

W is for WEIGHING OPTIONS

Before jumping in to a Chapter 11 bankruptcy, your church needs to weigh all of its options.

Can you campaign in the community and online to raise money for the mortgage? Can you sell vacant real estate or other investments to pay back taxes? Is it possible to temporarily cut back on mission programs or to substantially increase revenue from business interests? Will insurance policies cover compensation for any victims of church wrongdoing?

Be clear about how your individual parish is set up. Is it an individual corporation? Are schools or thrift stores separate corporate entities or are they considered assets of the church? What will be the impact of bankruptcy on these church-related functions?

Carefully consider the worst and best-case scenarios of any plan. Hold several brainstorming sessions to get fresh ideas.

You will generally have four months after filing to come up with your own plan before your creditors and the courts weigh the options for you. So decide on the best course of action to present to the court before your church even thinks about filing. Then take the last step:

S is for SPEAKING TO AN EXPERT

A competent bankruptcy attorney is your church's best ally when planning for success after your Chapter 11 bankruptcy.

He or she will help you understand the way your debts will be prioritized by the courts. A bankruptcy lawyer can also help with mediation, which often ensures confidentiality for your church.

Invite a bankruptcy attorney to a committee meeting so that he or she can explain some of your choices to the group. Alternately, have several members consult with a bankruptcy attorney and then report back to the committee. Contact a firm like Yoder Law Group for more information.

When it comes to your church's financial survival after bankruptcy, remember the PEWS. They'll point your church in the direction of fiscal salvation.