The Debtors made numerous prepetition charitable contributions to their church throughout 2008 and 2009. The Debtors’ prepetition gross earned income was less than $10,000 each year, however, the Debtors also received over $20,000 in social security payments annually. After filing for Chapter 7 relief, the Trustee filed an adversary proceeding against the Debtors’ church seeking to avoid and recover the charitable donations received from the Debtors pursuant to 11 U.S.C. § 548. The Trustee filed a Motion for Summary Judgment asserting that there were no material facts in dispute and that, as a matter of law, he should be awarded a judgement on the claims. The church responded to the Trustee’s motion (deleted phrase) by filing its own motion for summary judgment claiming that it is entitled to keep the Debtors’ donations pursuant to 11 U.S.C. § 548(a)(2). Section 548(a)(2) provides a possible defense against avoidance and recovery of fraudulent transfers to qualified religious or charitable organizations – contributions under 15% of gross annual income (“GAI”) are excepted from avoidance.
The Court was presented with the following issues: (a) for purposes of § 548(a)(2), are social security payments included in GAI?; (b) for purposes of § 548(a)(2), is the 15% threshold applicable to transfers individually or transfers made in the aggregate on an annual basis?; and (c) if the transfers exceed 15%, is the entire transfer voidable or just the amount of the transfer that exceeds 15%?
The Bankruptcy Court concluded: (a) for purposes of § 548(a)(2), Social Security payments are not included in GAI and, thus, the 15% limit does not include the social security income; (b) for purposes of § (548)(a)(2)(A), the 15% threshold applies to transfers made in the aggregate on an annual basis; and (c) if the transfers exceed 15%, then only the transferred amount that exceeds 15% is avoided. The Debtors’ contributions exceeded their 15% GAI in both 2008 and 2009. The Trustee was entitled to an avoidance and recovery of $2,614.95.