Are Churches Slowly Recovering?

I'm thrilled to join Credit Slips as an occasional contributor. As Bob mentioned, my research focuses on religious organizations that file under chapter 11. Based on the approximately 500 religious institutions that filed between 2006 and 2011 (about 90 cases per year), I previously concluded that primarily small nondenominational and congregationalist Christian churches seek to reorganize in hopes of retaining their buildings after they have fallen behind on mortgage payments. I recently updated my database of religious organization chapter 11 cases through the end of 2013 to see if faith-based institutions filed in similar numbers over the past couple years. (My previous paper details how I identify these filings.)

This graph shows the number of religious organization chapter 11 cases filed per year (values on left axis) versus the total business chapter 11 filings per year (values on right axis) based on data from Epiq Systems. Religious organizations are still filing in what some might view as substantial numbers: 107 cases were filed in 2012 and 89 cases were filed in 2013. Similar to total chapter 11 filings, their filing numbers are declining. On average, religious organization cases still account for about 1% of chapter 11 filings every year. 

It's hard to draw concrete conclusions about how religious institutions have fared in recent years based on these numbers. Relying on the debtors’ names, Christian churches accounted for the vast majority of filings in 2012 and 2013. Jewish organizations, such as temples and Chabads, comprised about the same percentage of religious organization cases as in previous years.

Filings may have decreased year over year for a variety of reasons. As the economy recovered, congregants may have felt more financially secure. Decreased donations in the wake of the Great Recession fueled many of the filing between 2006 and 2011. Perhaps churches overall are taking in more revenue as their members finally feel able to give at all or more to their congregations.

Mortgage lenders also may have slowed their foreclosure activity. Indeed, Evangelical Christian Credit Union, which loaned money to some of the churches in my study, claims that its foreclosures against churches declined between 2011 and 2012. Similarly, negotiations between lenders and churches may be more productive. A breakdown in negotiations seemed to drive some of the filings between 2006 and 2011.

Nonetheless, assuming their chapter 11 filings are an indication of distress, religious organizations are still facing financial problems. It is interesting merely to note that many churches and other faith-based institutions are continuing to use the bankruptcy system to deal with their financial issues.