While bold steps taken in faith sometimes result in amazing outcomes, typically bold financial steps taken without consideration of the Law of Gravity are not usually exempted from the predictable results. Church debt is a tool that should be carefully used. There have been many studies during the last century about the safe ratio of debt to giving, or debt to member income, but rarely are they consulted when church leadership decides to take a leap of faith.
In the Abundant Life Worship Center Bankruptcy, Opinion on Motion to Confirm No Stay is in Effect, (BKR SD Geo., 2020), the church sough to stop foreclosure three times in the prior two years. The three efforts included one state court injunction proceeding and two federal bankruptcy cases. The notes were on 40 acres and a newly constructed worship center that totaled $1,650,167. The church membership was 25-30, although growth after the pandemic was anticipated. Offerings, the only source of income, dropped from $260,549 in 2018 to $99,484 for the first ten months of 2020. The church also had non-mortgage debt. The church argued that the mortgages were not approved by the membership even though the church was a congregational church. The church argued that the earlier bankruptcy filing also was not authorized by the church membership. The instant case was the third attempt. The bankruptcy court held that congregational approval might be important in some circumstances, such as a schism, but not so to support a claim the mortgages were ultra vires. The lender foreclosed but held the deed pending a ruling that there was no stay in effect. The court held there was no stay in effect.
These reports are not intended to provide an in-depth treatment of the bankruptcy code, which clearly had some impact on the resolution reported. The lesson, however, to be learned is that while a congregational church might be able to prevent ultra vires actions by unauthorized church leadership in a schism, it will not likely work as well in commercial transactions. The church in the reported case over a substantial period of time increased its mortgage load, constructed a building, and otherwise observed the commercial activity. These things were not done in a corner. Congregational approval, or acquiescence, could be assumed.