The state’s oldest junior college has been attempting debt resolution in Texas bankruptcy court since August. Lon Morris Junior College filed for bankruptcy a few months ago, in efforts to preserve the 158 year old educational institution. However, a recent move towards restructuring could cause some trouble with charitable donators.
With an outstanding $13 million in bond debt obligations, Lon Morris has been struggling for a while to maintain its educational operations. One of the recent moves towards fiscal health is a proposal to use some of the institutions $11 million endowment to pay creditors. The foundation that controls this fund is challenging the idea proposed by the college’s bankruptcy lawyers, stating the use of these funds is inconsistent with the intent of the donors who gave the money.
The Texas Methodist Foundation is one of several fund contributors who have filed a suit to protect their share of the endowment. Foundation attorney Patrick Kelley said, “Each of the endowments was created with the intent and the purpose of furthering educational, charitable and religious endeavors of the Methodist Church and Methodism, now known as United Methodist Church.”
The current rules surrounding this issue are a gray area in the Bankruptcy Code, so there is no real precedent with how to proceed. However, it is thought that judges are viewing nonprofit groups akin to businesses, which is resulting in an “erosion of the privileges and immunities that charities had” to begin with.