Bankrupt Texas College Might Tap Endowment to Pay Debts

Bankruptcy lawyers for Lon Morris College want the private Texas institution to use its $11-million endowment to pay its bills, prompting a legal challenge by the foundation that controls the fund, The Wall Street Journal reports. The Texas Methodist Foundation filed suit earlier this month to protect a share of the endowment derived from donations and bequests, arguing that spending the money on resolving the bankruptcy case is inconsistent with donors’ intent.

Lon Morris, a 158-year-old liberal-arts college affiliated with the United Methodist Church, filed for bankruptcy in July, blaming the financial consequences of an effort to grow enrollment by offering tuition discounts.

Paul Dostart, a San Diego attorney who has researched bankruptcy and charities, said judges are increasingly viewing nonprofit groups as akin to businesses, leading to an incremental “erosion of the privileges and immunities that charities had” in such cases.

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