Non-Profits and Bankruptcy
Though it may sound funny at first, Non-Profit corporations can legally file bankruptcy. Bankruptcy can be of benefit to them in various ways. Just because they do not have shareholders (equity class) and do not distribute dividends, does not necessarily mean that they do not have debt problems.
Recently, the attorneys at Pollak, Hicks & Alhejaj, P.C. were able to keep a church open that was facing foreclosure. The congregation had split over a social/doctrinal issue, and a significant number of parishioners left to start their own church. The splinter group took their offerings and their tithings, but left the mortgage and other financial obligations behind. This left the church with an acute cash flow shortage to deal with the same level of bills.
The church was facing imminent foreclosure and despite best efforts was not able to reach an out of court settlement workout. Attorney David Hicks guided the church (non-profit company) into a Chapter 11 bankruptcy reorganization proceeding. The new plan held off the foreclosure, created a “spin off” church child care business to increase cash flow, reduced some operating expenses and obtained court approval of a new and gentler monthly payment plan.
The proposed reorganization plan was confirmed by the federal judge. The successful bankruptcy case could be closed, but the church remained open.