Religious School Tuition and Chapter 13: Allowed by Section 1325(b)?

One of the most frustrating aspects of chapter 13 is the uncertainty over whether a child’s religious school tuition is an allowable expense.  Given the importance that some families place upon religiously oriented education, a family considering chapter 13 might refuse to proceed, if it means that the children have to be pulled out of a religious school and enrolled instead in a public school.

It isn’t hard to understand such parents’ concerns, given the dramatic effect that changing schools typically has on a child’s emotional and educational development – not to mention the impact on the parents’ spiritual goals for their child.  If filing chapter 13 means that a family can no longer pay for their child’s religiously based schooling, then chapter 13 is not an option for families belonging to traditional-minded Catholic, Jewish, Islamic, or other religious traditions which commonly maintain schools for children of their members through high school.

It’s fair to say that when a child’s private school is religiously based, the parents’ concern with not interrupting the child’s education is based upon something more than merely a concern for the child’s academic achievement.  Courts have long recognized that parents have a compelling interest, protected by the First Amendment’s Free Excercise of Religion Clause, in being able to educate their children in religious schools as opposed to public schools.

The bankruptcy law’s means test, or Form B22A, recognizes the right of a bankruptcy debtor to continue making “charitable contributions” to religious or charitable entities (see 11 U.S.C. section 707(b)(1)).  This amounts to a congressional authorization of tithing or regular contributions to churches, synagogues, mosques, and similar religious entities, even if the money could have gone to a bankruptcy debtor’s creditors.  In short, congress decided that freedom of religion trumps a creditor’s right to get paid, even in a bankruptcy proceeding, under the chapter 7 means test, at least where “charitable contributions” are concerned.

Section 548 of the bankruptcy code says to refer to section 170(c) of the Internal Revenue Code for the definition of “charitable contribution.”  Section 170(c) defines this to include, in part, a “contribution or gift” to a religious organization qualified under Internal Revenue Code section 501(c)(3).  If the payment of tuition to a parochial school constitutes a charitable contribution or a gift, then the tuition expense would be allowed on the means test.

Furthermore, in chapter 13, bankruptcy code section 1325(b)(2)(A)(ii) allows payment by the debtor of charitable contributions meeting the test of section 548, in an amount not to exceed 15 percent of the debtor’s gross income.  Once again, if a child’s religious school tuition qualifies as a charitable contribution or gift, then this expense would be an allowed expense, and it would reduce the amount of the debtor’s monthly chapter 13 payment.

Viewed in this light, both the chapter 7 means test (section 707(b)(1)) and chapter 13′s plan confirmation requirements (section 1325(b)(2)(A)(ii)) allow children’s parochial school tuition payments, assuming that such tuition payments constitute charitable contributions or gifts to the religious entity within the meaning of section 548.

Some religious groups expect a weekly or monthly contribution from a family, and in return the family is served by the religious group, children are educated, and a worship environment is provided.  Other religious groups make a distinction in their own accounting between children’s tuition and weekly tithes.  It would be well within reason for a bankruptcy court to conclude that under either practice, the payment by the chapter 13 debtor to the religious entity is protected as a charitable contribution or gift, pursuant to sections 1325 and 548.