Seeking Sanctuary from Debt -- Church Files for Bankruptcy

Now, the Rev. William E. Simmons, Trinity's pastor and chief executive, is asking the man upstairs for a little help with the man at the bank, where "there seems to be a very cold spirit."

Trinity's dilemma is in part the result of the dilemma facing churchgoers across the nation.

"They have to choose between putting money in the collection plate versus putting food on the table," says David Warren, a bankruptcy lawyer at Poyner Spruill in Raleigh. "And in a down economy, the food on the table wins out."

But Trinity's crisis has been exacerbated by the nation's lending crisis as even church loans -- once a low-risk, low-profile niche in a bank's portfolio -- start to feel the mainstream pressures of this recession.

The independent church was founded 12 years ago with a congregation of eight adults and 12 children. Within two years, the church had outgrown a cramped brick building in Zebulon.

Riding a national wave of church lending and a booming population in eastern Wake County, Trinity borrowed $1.25 million from what was then Centura Bank to build a 14,400-square-foot, single-story brick tabernacle on its 26-acre spread in Wendell. It was finished in 2001.

But in the past year, the recession has made it hard for everybody -- including Trinity's 125 members -- to heed the word according to Malachi: "Bring the full tithes into the storehouse, that there may be food in my house; and thereby put me to the test."

Churches rely on gifts to pay the bills. And Trinity, with its $12,000 monthly mortgage bill, was put to the test.

Two years ago, the church began struggling to make the payments, says Danny Bradford, Trinity's lawyer. So RBC Bank, which took over Trinity's loan when it bought Centura, agreed to let Trinity make interest-only payments until Trinity could figure out a way to raise more money.

"In the process of refinancing, they stopped paying on the existing mortgage and got behind and couldn't get out of the hole," Bradford says. Trinity, which reported $370,518 in gross income in 2007, didn't bring in a dollar in 2008, bankruptcy filings show.

Warren, whose firm represents RBC, declined to comment on Trinity specifically. "We've seen a growing number of churches filing for bankruptcy protection or having foreclosures made upon their sanctuaries," he says.

Other churches in distress

Indeed, this could be a record year for church bankruptcies in eastern North Carolina. Since 2006, at least seven religious institutions have filed for bankruptcy in the Eastern District of North Carolina. There were about five in all the previous six years.

"It's only getting worse," Warren says.

That's largely because of the current lending environment. Lenders -- either reeling from bad bets during the boom or cautious in the downturn -- are doling out less money. And debtors, particularly those in default, face big restructuring fees, higher interest rates or worse: a landscape barren of competing lenders willing to assume new debts.

And these days, churches are carrying more debt than in the past. During the past decade, easy money permeated all facets of the economy. Houses of worship weren't excluded. Major lenders encroached on what was once the sacred domain of specialized church lenders. In August 2003, $8.8 billion in religious construction projects were under way across the country -- an all-time high, up from just $3.6 billion a decade earlier, according to U.S. census data. The tally fell to a decade low -- $6.6 billion -- in January.