In 1998, the Religious Liberty and Charitable Donation Protection Act was enacted. In part, this act amended Bankruptcy Code 1325 by recognizing that charitable contributions that do not exceed 15 percent of a debtor's gross income may be excluded from the debtor's disposable income in calculating the amount to be paid to creditors as part of a Chapter 13 bankruptcy plan. One of the Act's purposes was to "protect the rights of debtors to continue to make religious and charitable contributions after they file for bankruptcy relief." H.R. Rep. No. 105-556 (105th Cong.). Courts have interpreted the Act to subject charitable contributions to two limitations. First, the amount of the contribution cannot exceed 15 percent of gross income. Second, the amount of the contribution must be reasonable. In re Buxton, 228 B.R. 606 (Bankr. W.D. La. 1999). Recently, two bankruptcy court decisions have considered the issue of charitable contributions in a post BAPCPA Chapter 13. In the matter of In re Petty, 338 B.R. 805 (Bankr. E.D. Ak. 2006), the court held that the debtors' proposed charitable contributions were not included in the debtors' disposable income for the purpose of plan confirmation. In that case, the Pettys were members of First Assembly of God church and tithed $104 per week. The schedules showed that the Petty's gross monthly income was $4,073.34 and the monthly tithe of $416 was 9.8% of their gross income. The court looked to Section 1325(b)(2)(A)(ii) of the Bankruptcy Code which excludes from disposable monthly income "charitable contributions (that meet the definition of ?charitable contribution' under section 548(d)(3) to a qualified religious or charitable entity or organization) in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made. The court said that a three step test must be satisfied in order to determine if a charitable contribution may be excluded from a debtor's disposable income. First, the contribution must be a charitable contribution. Second, the contribution must be made to a qualified religious or charitable entity or organization. Third, the contributions must not exceed 15 percent of the debtor's gross income for the year in which the contributions are made. The court determined that the Pettys satisfied all elements of this three part test and allowed the debtors to exclude the amount of the charitable contribution from the calculation of disposable income for the purpose of plan confirmation. In contrast however, a New York bankruptcy court recently held that a Chapter 13 debtor who made above the median income could not exclude charitable contributions from disposable income for the purpose of plan confirmation. In the matter of In re Diagostino, 2006 Bankr LEXIS 214 (Bankr. N.D. N.Y. 2006), the court held that the debtors' deduction for charitable contributions in calculating their disposable income under the means test is not permissible. In this matter, the debtors listed a monthly expense of $100 for charitable contributions. The debtors and the trustee stipulated that if the debtors' charitable contributions was not deducted, the disposable minimum income for unsecured creditors would increase from $74,351.25 to $80,351.25. The trustee argued that because the debtors' income exceeded the applicable state median, the debtors are subject to the means test and their expenses are subject to the IRS guidelines to determine their disposable income for repayment to unsecured creditors. The trustee argued that because the debtors' income exceeded the median income, section 1325(b)(3)(B ) applied and the court must refer to section 707(b)(2) which requires that the debtors apply the IRS standards in computing expenses. Section 1325(b)(3) states that reasonably necessary expenses shall be determined in accordance with section 707(b)(2) if the debtor's income is greater than the median family income of the applicable state. Section 707(b)(2) then directs that calculations for reasonable expenses qualify under the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides. Thus, the court reasoned that above median income debtors may not deduct actual expenses from their income to calculate disposable income, but rather, they must use the specific, standardized dollar amounts listed in certain IRS publications. Under section 5.15.1.10 of the IRS Manual, Other Necessary Expenses may include charitable contributions if they meet the necessary expense test. The necessary expense test states that expenses "must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income." In order for a charitable contribution to satisfy this test, the contributions are necessary if "it is a condition of employment or meets the necessary expense tests. Example: A minister is required to tithe according to his employment contract." The court found that there was nothing in the record indicating that the debtors charitable contributions provided for the health and welfare of the debtors nor were they for the production of income. The court further stated that there was no evidence establishing that the debtors were required to make charitable contributions in the context of their employment or that either debtor was a minister. The court found that the charitable contributions were not provided for under section 707(b)(2)(A) and (B ) of the Bankruptcy Code and do not meet the necessary expense test. The court ruled that the debtors do not qualify for a continued charitable contribution expense and sustained the trustee's objection to the confirmation of the plan. In these two cases, we see that two separate courts applied different tests to similar sets of facts which resulted in two separate and conflicting results. This is yet another issue in which the language of the BAPCPA has created confusion in the application of the law. Ray Copyright ? All Rights Reserved