Struggling to pay the mortgage on its dorms, bankrupt Lon Morris College's attorneys want to dip into the schools $11 million endowment fund to pay its final bills, the Wall Street Journal reported today. The Texas Methodist Foundation, which holds the money, has filed a lawsuit to protect some of the college's endowment money, arguing that spending it on creditors and the professionals who are now preparing to auction off the college piece-by-piece “is not consistent with the charitable intent” of the endowments, according to court papers. Where a charity’s endowment money goes after a bankruptcy filing is a gray area for the Bankruptcy Code, and it’s rarely explored. This kind of conflict arose in the 1987 bankruptcy of Bishop College, another Texas college with a historically black student base and a ministerial program that taught the Revs. Martin Luther King Jr. and Jesse Jackson. In that case, the court denied a request from the college’s bankruptcy attorney to take charitable money that was set up to pay the annual income of the college, declaring that the money was not property of the bankruptcy estate. But when Winstead Memorial Hospital in Connecticut faced a similar issue after closing its doors in 1996, bankruptcy professionals were able to use income from the endowment fund to cover the hospital’s general expenses.
