Charities Seek Bankruptcy Protection

Feb. 20, 2009, The New York Times — On Tuesday, the board of Glass Youth and Family Services in Los Angeles voted to file for bankruptcy protection, unable to overcome falling state reimbursements, rising costs and dwindling donations.

“We did everything we could to keep going,” said Teresa DeCrescenzo, executive director of the organization, which offers social services to gay, lesbian and transgender youth.

Charities rarely go bankrupt, although there have been scattered examples involving nonprofit hospitals and Catholic dioceses facing lawsuits stemming from the priest sexual abuse scandals. Traditionally, insolvent organizations have simply closed their doors and filed a plan of dissolution with the charity regulator in their state.

But in the last six months, nonprofit groups that include cultural institutions and social service agencies have filed to reorganize or liquidate themselves under the bankruptcy code.

While no one has compiled data on how many charities have turned to the courts for protection, experts in the field say it has become more common as nonprofits have been pressured by donors to operate more like businesses.

“Our expectation is that this is just the tip of the iceberg,” said Diana Aviv, president and chief executive of Independent Sector, a trade association for nonprofit groups, pointing to a decline in donations and the difficulty such groups are having in getting loans.

Performing arts groups typically are the nonprofits hit first in economic downturns, as donors devote more of their giving to charities that address basic needs and consumers cut spending on entertainment. Groups like the Baltimore Opera Company and the Spartans Drum and Bugle Corps in Nashua, N.H., are either reorganizing under bankruptcy protection or simply going out of business.

Also among those seeking bankruptcy protection in the last six months are a rape crisis organization in Maine, a low-income housing group in Massachusetts and a nonprofit retirement community in Pennsylvania that took on too much debt.