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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33381
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I am on the Board of Trustees of a small church located in

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I am on the Board of Trustees of a small church located in Queens, NY which is having a significant problem with decreasing funds. It costs approx. $8,000/month to maintain the church and we bring in an average of $1,500/month in collections/donations. We have a balance of approx. $30,000 in our checking account. No other investments, although we own the church property outright. While we've listed the property for both sale and/or rent, we've received no significant interest to date. At this point we can foresee the possibility of exhausting our funds in approx. 4 months and are concerned about what happens after that. Here is our "multi-layered" question:


- DOES A CHURCH IN OUR SITUATION HAVE TO FILE FOR BANKRUPTCY PROTECTION?

- WHAT ARE THE TYPES OF BANKRUPTCY FOR AN ORGANIZATION SUCH AS OURS?

- IF THE CHURCH SHOULD FILE FOR BANKRUPTCY, MUST THIS PROCESS BE STARTED NOW OR ONLY WHEN WE ARE IN SIGNIFICANT DEBT? CAN YOU HELP US DEFINE SIGNIFICANT DEBT? IS IT ONLY WHEN A COLLECTION PROCESS AGAINST THE CHURCH BEGINS?

- WHAT IS THE BOARD OF TRUSTEES REQUIRED TO DO AS FAR AS KEEPING THE MEMBERSHIP INFORMED/UPDATED ON THE STATUS OF OUR FINANCES AND KEEPING RECORDS UP-TO-DATE FOR A POSSIBLE BANKRUPTCY HEARING? EXACTLY WHAT RECORDS WOULD BE NEEDED FOR SUCH A HEARING?

- SHOULD THE BOARD OR CHURCH OFFICERS BE CONCERNED ABOUT ANY PERSONAL LIABILITY INVOLVED WITH BANKRUPTCY PROCEEDINGS?

- ARE MEMBERS WHO ARE DESIGNATED AS CHECK SIGNATORIES EXPOSED TO ADDITIONAL LIABILITIES?

- IN A BANKRUPTCY PROCESS HOW MANY YEARS BACK DOES THE STATE INVESTIGATE THE CHURCH FINANCES?

- WOULD NY STATE EVER TAKE OWNERSHIP OF OUR PROPERTY IN A BANKRUPTCY PROCEEDING, AND IF SO ever take ownership of our property in a Bankruptcy proceeding, and IF SO, WOULD WE BE PENALIZED AND/OR LOSE ANY INCOME FROM THE EVENTUAL SALE OF THE PROPERTY AFTER DEBTS ARE PAID?
Submitted: 8 months ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 8 months ago.
Hello,

You asked:

- DOES A CHURCH IN OUR SITUATION HAVE TO FILE FOR BANKRUPTCY PROTECTION?

A: No one is required to file for bankruptcy. An organization that has no assets, could simply close its doors, and pay out any of its remaining assets to creditors, without filing bankruptcy. That would end the matter. However, if you want to continue under your existing name, then it may be better to file for Chapter 7, and get a fresh start. The problem is that when an organization files bankruptcy, it must be represented by an attorney in court. That will cost you probably $5,000-$10,000 -- which you don't have. So, you may have no choice other than to close the doors.

- WHAT ARE THE TYPES OF BANKRUPTCY FOR AN ORGANIZATION SUCH AS OURS?

A: Chapter 7 (liquidation); Chapter 11 (reorganization). Chapter 11 would be a waste of money, because you have no assets to speak of, and nothing to reorganize. Better to file Chapter 7, and then just start over in a new location. Or, close your doors, and do the same.

- IF THE CHURCH SHOULD FILE FOR BANKRUPTCY, MUST THIS PROCESS BE STARTED NOW OR ONLY WHEN WE ARE IN SIGNIFICANT DEBT? CAN YOU HELP US DEFINE SIGNIFICANT DEBT? IS IT ONLY WHEN A COLLECTION PROCESS AGAINST THE CHURCH BEGINS?

A: There is no specific minimum financial circumstance that mandates/warrants bankruptcy. However, the general rule is that insolvency (assets minus liabilities = less than zero) is where bankruptcy begins to make more sense than not.

- WHAT IS THE BOARD OF TRUSTEES REQUIRED TO XXXXX AS KEEPING THE MEMBERSHIP INFORMED/UPDATED ON THE STATUS OF OUR FINANCES AND KEEPING RECORDS UP-TO-DATE FOR A POSSIBLE BANKRUPTCY HEARING? EXACTLY WHAT RECORDS WOULD BE NEEDED FOR SUCH A HEARING?

A: No notice or vote is required for the board to place the church in bankruptcy, unless the articles of organization or bylaws provide otherwise. As far as records are concerned, your most recent annual and quarterly financial statements, tax returns, any certificates of title for vehicles, the title to your church property, bank accounts, cds, etc., is what you need.

- SHOULD THE BOARD OR CHURCH OFFICERS BE CONCERNED ABOUT ANY PERSONAL LIABILITY INVOLVED WITH BANKRUPTCY PROCEEDINGS?

A: If no one has ever guaranteed a church debt (I assume you are organized as a nonprofit corporation), then there is no personal liability. Only the organization is liable.

- ARE MEMBERS WHO ARE DESIGNATED AS CHECK SIGNATORIES EXPOSED TO ADDITIONAL LIABILITIES?

A: If any employment/payroll taxes have been collected but not remitted to the IRS, then the responsible person could be held liable for the failure. The penalty is 100% of the taxes not remitted.

- IN A BANKRUPTCY PROCESS HOW MANY YEARS BACK DOES THE STATE INVESTIGATE THE CHURCH FINANCES?

A: The state doesn't investigate anything. Bankruptcy is a federal court matter, and usually the trustee only looks back two years.

- WOULD NY STATE EVER TAKE OWNERSHIP OF OUR PROPERTY IN A BANKRUPTCY PROCEEDING, AND IF SO ever take ownership of our property in a Bankruptcy proceeding, and IF SO, WOULD WE BE PENALIZED AND/OR LOSE ANY INCOME FROM THE EVENTUAL SALE OF THE PROPERTY AFTER DEBTS ARE PAID?

A: The state won't take ownership. The bankruptcy trustee would do so, and he/she would liquidate the property to pay your debts, unless you have the money to do so. If the church property is valuable, then bankruptcy may not be an option. You may have to consider trying to raise enough in donations to settle your debts. Otherwise, you could lose the church property, and the trustee would then pay your debts and then distribute the remaining proceeds of sale back to the church.

You probably would do well to have a local business bankruptcy lawyer take a look at your financial statements. I don't know how much your church is worth, but you obviously don't want to have to give up the property if you can avoid doing so. Maybe you could rent the property to another church, and take your church to a less costly location. That way you could use the rental income to pay off your debt, and avoid filing bankruptcy.

Please let me know if my answer is helpful, or if I can provide further clarification or assistance. If you need a link to a lawyer referral service, let me know that, too and I will be happy to provide.

And, thanks for using justanswer.com!
Customer: replied 8 months ago.


Thank you so much for your response. My apologies - I had to sign off last night as I was having computer issues. My only follow-up question is - how is the bankruptcy trustee appointed and who is it usually? A bank? An attorney? My assumption then is that he/she/it would sell the church property at a relatively low price in order to expedite. You're right in your assumption that the property is valuable and, yet, we've been investigating rental of the building too.


 


Again, many thanks!


 


June

Expert:  socrateaser replied 8 months ago.

My only follow-up question is - how is the bankruptcy trustee appointed and who is it usually? A bank? An attorney? My assumption then is that he/she/it would sell the church property at a relatively low price in order to expedite. You're right in your assumption that the property is valuable and, yet, we've been investigating rental of the building too.

A: In a Chapter 7, the bankruptcy trustee is appointed by the U.S. Attorney General -- typically a trustee is a lawyer or CPA who is appointed to routinely represent unsecured creditors in bankruptcy proceedings.

 

In a Chapter 11, the debtor itself is the trustee (aka "debtor-in-possession" (DIP)) -- so, it would be your board of trustees that manages the bankruptcy (unless, there is evidence offered to the court that demonstrates that the DIP is engaged in fraudulent activities -- in which case a regular bankruptcy trustee is appointed.

 

Re selling at a low price, that doesn't generally happen. The trustee is paid a commission to manage estate assets, so the more the estate is worth, the more the trustee makes. Also, you can object to the sale price in court, if it's too low. So, while it's certainly possible for a trustee to funnel a sale to a friend or business associate at a lowball price (which would be a felony, among other things), if you're paying attention, that won't happen.

 

Again, many thanks!

 

A: You're welcome and good luck.

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33381
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 8 months ago.


Thanks for everything - very helpful!

Expert:  socrateaser replied 8 months ago.
You're welcome and good luck.

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