By order of the Bank ruptcy Appe llate Panel, the prec edential effec t of t his de c isi on is l im ite d to thec as e an d p ar tie s p ur su an t to 6th C i r . B A P L B R 8 0 1 3 -1 (b). S

ee a l s o 6 th C i r . B

A P L B R 8 0 1 0 -1 (c)).
F ile Nam e: 07b0017n.06 BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n r e : DIAN

N C OL B ERT Debtor.

______________________________________ DI ANN COL BERT,

Ap pe lla nt,

v. RI CHARD A. B AUMGART,

Appellee

.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 06-8046

Appea l from the United States B ankruptc y Court for the N orthern D istrict of Ohio, Easter n Division, at Cleveland. No. 05-93234. Argued: Fe bruar

y 7, 2007 Dec ided and F iled: Dece mber 20, 2007 B e fo re : L AT TA , PA RSO NS, and SCO TT , B ank

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL ARG UED: R obert M. Stefa ncin, SCHOTTENSTEI

N, Z OX & DUNN, Cleve land, Ohio, for Appellant. Richar d A. B aumg art, DE TTEL BA CH, SI CHERMAN & B AUMGART, Clevela nd, Ohio, for Appe llee. ON BRIEF: R o b e r t M

. S t e f a n c i n , M

. C o l l e t t e G i b b o n s , T ayl o r M

. W e s l e y, SCH OT TENST EI

N, Z OX& DU

NN , Cl e ve land , O hio , f

or Ap pe lla nt. Ric ha rd A. B a umg art , L isa A. Var dzel, DETTEL BA CH, SI CHERMAN & B AUMGART, Clevela nd, Ohio, for Appe llee.Pag e 2 of 8 ____________________ OP IN ION

____________________ JENN I E D . LAT TA , B ank ru ptc y Ap pe llate Pane l Judg e . Di ann Col be rt (“ De bto r” ) a pp e a ls an orde r of the ba

nkruptcy court sustaining the Trustee ’s objection to t h e De btor’s cla imed exemption of the Earne d I ncome Tax Credit (“EI TC”) a s “per sonal ea rning s.”

I. ISS UE ON AP P EAL The issue ra ised by

this appeal is whethe r the EI TC is ex empt under O h io Revised Code § 2329.66(A)( 13).

II. JU RI SDI CT ION AN D ST AN DA RD OF RE VI EW The Six th Circuit Bankr

u p t cy Appellate Pane l has jurisdiction to decide this appea l. The United St at es Di s t rict Court for the Norther n District of Ohio has a uthorized appea ls to the Ba nkruptcy Appellate Panel. A final order of a bankruptc y court may

be appe aled by

rig ht under 28 U.S.C. § 158(a)(1) . An orde r is final if it “ ends the litigation on the merits and leaves nothing for the court to do but ex ecute the judg ment.” Midland Asphalt Cor p. v. United States , 489 U.S. 794, 79 8, 10 9 S. Ct. 14 84 , 1 49 7 ( 19 89 ) ( c itatio ns omi tte d) . A n o rd e r o n a n o bje c tio n to a

de bto r’ s c la im of exemption is a final or der f or purpose s of appe al. W

ic he ff v. Ba um ga rt (

In re W ic he ff) , 2 15 B .R. 839, 840 (B .A.P. 6th Ci r. 1998). The B ankruptc y

Appellate Pane l review s conclu s i o n s of law de novo

. Carad on Do or s & W indows, Inc. v. Eagle-Picher I ndus., Inc. (

In re Eagle -Piche r Indus., Inc.) , 447 F.3d 461 (6th Cir. 20 06 ); Me oli

v . Ci tic or p Tr us t B an k

( In re Os wal t) , 444 F.3d 524 ( 6t h Cir. 2006). A bankr uptcy court’s a pplication or interpr etation of state law is a conclusion of law. See V an Ake n v. Van Ak

en ( In re Van Aken) , 320 B.R. 620, 623 (B .A.P. 6th Ci r. 2005). Interpre tation of a state’ s exempti onPag e 3 of 8

statute involves a question of law and is revie wed de novo

. Hamo v. W ilson (I n re Hamo) , 2 33 B .R. 718, 721 (B .A.P. 6th Ci r. 1999). De nov o revie w re quires the “appe llate court [ to determine] the law indepe ndently of the trial court’s de termination.” O’ Br ie n v . R av e ns woo d A

pa rtm e nts , Lt

d. ( In re Ra v e ns woo d A

pa rtm e nts , Ltd.) , 3 3 8 B. R

. 3 0 7 , 3 1 0 (B

. A. P

. 6 t h C i r. 2 0 0 6 ) ( ci t i n g Tre ini sh v . Norwe

st Ban k Mi nn ., N.A . (

In re Pe ria nd ri) , 266 B.R. 651, 653 (B .A.P. 6th Ci r. 2001)) . Essentially , the re viewing court de cides the issue as i f i t had not been he ard be fore

. Mktg. & Creative Solutions, Inc . v. Scripps Howard Broad. Co. ( In re M ktg. & Creative Solutions, Inc.) , 338 B.R. 300, 302 (B .A.P. 6th Cir. 2006)

. No def ere nce is give n to the trial court’ s conclusions of law. Id . at 302.

III . F AC TS The Debtor, Diann Colbert, is the single mother of two minor c hildren. In 2005, Ms. Colbert

was employ ed as a home health car e aide ear ning less than $7,000. Ms. Colbert had no other sour ce
o f i n c o m e i nt h a ty e ar

an d r e c e i v e d n o c h i l d s u

p p o rt
. S h e i s t h e s o l e w a g e e ar n e r f o r h e r f a m i l y . In J une of 2005, the Debtor’ s car was re possessed whe n she wa s unable to make ca r p ay ments. She also was una

ble t o pay

delinquent utility

and medica l bills , and thus soug ht the assistance of the L eg al Aid Society of Cleveland. She was re fer red to c ounsel who assisted her in filing a

voluntary petition f o r r e li e f u n d e r Ch a

p te r 7 o f th e B an kr

u p tc y Co d e o n O c to b e r 1 4 , 2 0 0 5

. Ric hard A Ba umga rt was a ppointed Chapter 7 trustee (“Tr ustee” ). On Janu ary 24 , 2 00 6, Ms. Col be rt

fi le d h e r 2 00 5 f

e de ra l and state inc ome ta x re tur ns , pr ov idi ngc op ie s to the Tr us te e . Th e fe de ra l tax re tur n sho we d no tax with he ld or du e a s th e re su lt of the De bto r’ s me a g e r ea

rn ing s, and wa s file d in ord e r fo r Ms. Col be rt to cl a im the Ea rn e d Inc ome Tax Credit. As the result of f i l i n g h er state and f

eder al re turns, she re ceive d a state inc ome tax ref und of $70 and a

n EI TC in the amount of $2,750. On May 17, 2006, the Trustee filed a motion seekingthe turnover of a por tion of the funds

rec eived by

Ms. Colbert, allocating the EI TC into pre and post-pe titi o n p o rt i ons. The Truste ePag e 4 of 8

indicated that the D ebtor ha d failed to identify these funds a s ex em p t p roperty . Ms. Colbert

re sp on de d b y

fi lin g an a me ndme nt t o h e r S c he du le C a sse rt ingtha t he r E I TC w a s e xemp t pr op e rt y under O hio Revised Code §§ 2329.66(A) (4)( a) ( exempting tax refunds and w ages up to $400), 2329.66(A)( 11) (e x empting a person’ s “rig ht to rece ive spousal support, c h il d s u p p o r t, a n a llowance , or other ma intenance to the extent reasonably nece ssary

for the suppor

t of the person or any

of the person’ s depende nts”), and 2329.66( A)(13) (exempting “ persona l ear n ings ow ed to a pe rson for

se rvic e s in

an amou nt e qu a l to the g re a te r o f [c e rt a in a mou nts ]”) . T he Tr

us te e c on c e de d th a t a
cer tain portion of t he EI TC could be c laimed as e x empt pursuant to § 2329(A) (4)( a), but objec ted that the EI TC did not represe nt support for purposes of § 2329.66(A)( 11) or personal ea rning s for purposes of § 2329.66( A)(13)

. After conducting hear ings, the bankruptc y court a g ree d, denying the claims of exemption pur suant to §§ 2329.66(A)( 11) and (A)( 13), and order ed the Debtor to turn over $1,432.80 to the Trustee . The De btor filed a timely notice of a

ppeal, b u t h as aba

ndoned her argument pursuant to § 2329.66(A) (11). This appe al ra ises the sole issue of whe ther the EI TC may be exempted as “per sonal ear nings owed to the pe rson for se rvice s” pursua nt to Ohio Revised Code § 2329.66(A)( 13).

IV . D ISC USS ION As an initial matter, the De btor’s cla im of exemption enjoy s a pre sumption of validity . The burden r e s ts w it

h th e T r u s te e to s h o w th a t t

h e D e b to r ’ s c la im

o f e xe mp ti o nis n o t j u s ti f

ied. Mo re ov e r, Oh io c ourt s f oll owthe g e ne ra l pr inc ipl e tha t e xemp tio n s ta tut e s sh ou ld b e lib e ra lly construed in f

avor of the debtor w here ver possible. Daugherty v . Cent. Trust Co., 504 N.E.2d 1100, 11 04 (O hio 19 86 ); De nn is v . S mi th , 1 80 N. E. 63 8, 64 0 ( Oh io 1 93 2) . Wh e n tw o p os sib le int e rp re ta tio ns of

an e xemp tio n pr ov isi on e xist, the c ourt sh ou ld a do pt the int e rp re ta tio n that is mos t favor able to the de btor. In re Le wis , 327 B.R. 645, 648 (B ankr. S.D. Ohio 2005). Ohio is an “opt out” state for purposes of the Ba nkruptcy Code. See 11 U.S.C. § 522(b)( 1),

and Oh io R e v. Cod e Ann. § 2 32 9. 66 2. Th is m e ans that an O hio de bto r m ay on ly c la im p rop e rt

yPag e 5 of 8

exempt from her bankruptcy estate pursuant to Ohio law. The Ohio Supreme Court has not dec ided the iss ue ra ise d in this ap pe a l. Th e re fo re , this Pane l must atte mpt to p re dic t w hat th a t c ourt wo uld do if confr onted with the same que stion. Baumgart v. Alam ( In re Alam) , 359 B .R. 14 2, 14 7 ( B .A .P. 6th Cir. 2006). Oh io R e vis e d Co de § 2 32 9. 66 (A )( 13 ) p ro vid e s in pe rt ine nt p art : (A ) E v e r y p e r s o nw h o i s d o m i c i l e d i nt h i s s t a t e m ay

h o l d p r o p e rt y e x e mp tf r o m e x e c u t i o n , g ar

n i s h m e n t , a t t a c h m e n to r

s a l e t o s a t i s f

y a jud g me nt o r o rd e r, a s f

oll ow s:

. . . . (13) Except as other wise provided in se ctions 3119.80, 3119.81, 3121.01, 3121.03, and 3123.06 of the Revised Co d e, persona l ear

nings of the per son owed to t h e person f or service s in an amount equal to the g reater of the following a mou nts : (a) I f paid wee kly , thirty times the curr ent fe d eral minimum hourly

wag e; if paid biwee kly , six ty times the c ur re nt f e de ra l mi nim

um h ourl y

wa g e . . . ; (b ) S eventy -five pe rce nt of the disposable e arnings owed to the pe rson. Ohio Rev. Code Ann. § 2329.66(A)( 13). The Ohio c ourts have not de fined “ persona l ear nings” for purp os e s of this se c tio n, bu t hav e do ne so wi th re sp e c t to a re la te d s ta tut e c on c e rn ingg arn ish me nts , section 2716.01, wher e “personal earning s” i s define d as “mone y or any other c onsideration or thing of value , that is paid or due to a pe rson in exchang e for work, labor, or per sonal servic es provided by the per son to an employ er.” The De btor argues that her EI TC w as incorre ctly denominated or equate d with a tax refund by the bankr uptcy court even though she paid no income taxes. The De btor furthe r ar g ues that the EI TC is a wag e sup p l em en t that is provided to low income wag e ea rner s to provide them an inc e nti ve to wo rk rathe r tha n re c e ive pu

bli c a ssi sta

nc e . The De bto r a

rgue s th a t th e EI TC i s p re c ise ly the ty pe of pr operty

that the Ohio l eg islature intended to shield fr om the rea ch of c reditors in orde r to provide per sons a minimal standard of living

.Pag e 6 of 8

Simi lar a rg uments were made by

the petitioner in a c ase de cided by the United States Supreme Court conc erningthe EI TC. I n So re ns on v . S e c ’y of t he Tre as ur

y , 475 U. S. 8 51 , 1 06 S. Ct

. 1600 (1986), the Court de termined that the EI TC might be inter cepte d for pay m en t o f delinquent child support in the same manne r as r efunds of taxes. Congr ess cr eate d the EI TC in 1975, “to reduc e the disince ntive to work ca used by the imposit ion of Social Security taxes on earne d income . . . to sti m u l at e t h e economy by funneling fu nd s to pe rs on s li kel y to s pe nd the mon e y

imm e diate ly

and to p ro vid e re lie f f

or low -i nc ome families hurt by

rising f oo d an d en ergy

price s.” Id. at 864 (c iting S. Rep. No. 94-36, pp. 11, 33 (1 97 5) ; H .R. Re p. No . 94- 19 , pp. 3- 4, 39 -3 1 (19 75 ))

. Th e EI TC is a cr e dit a g a ins t fe de ra l in c ome tax ot herw ise owed calculate d as a perc entag e of income up to a phase out amount. See 26 U. S.C. § 32(a) (1). Unlike othe r tax credits, howeve r, “the EI TC is ‘re fundable ,’ which means that ‘if the amount of the cre dit e x cee ds the taxpay er’ s Fe dera l inc ome tax l iability , the excess is pay able to the taxpay er a s a direc t transfe r pay ment.’” Jennifer E . Spreng , W he n “W e lfa re ” Be c om es “W

or k Support”: Exempting Earned I ncomeTax Credit Pa

ym en ts in Cons umer Bank ruptcy , 7 8 A m. Ba nkr. L .J . 279, 281 (2004) ( qu o t i n g S t aff of House Way s and Mea ns Comm., 108t h Cong., Ba ckg round Mater ial and Data on Prog rams Wit hin the J urisdiction of the Committ ee on Way s and Me ans 13 -3 6 (Co mm. Pr int 20 04 ))

. F ur the r, wa g e e arn e rs may

e le c t to re c e ive a dv anc e pa y me nts of their c redit with their re g ular pa y chec ks. See 26 U.S.C. § 3507. For a pe rson wit h two qualifying

c hil dr e n a nd annua l e arn e d in c ome le ss t ha n $ 8, 89 0, su c h a s th e De bto r, the c re dit is e qu a l to fo rt

y perc ent of he r ea

rned inc ome. See 26 U.S.C. § 32(b)(1) a nd (2). That is, the wage s of t hese w orker s
are supplemented by forty perc ent. I n the Debtor’ s case , her g ross income of $6, 8 9 4 was supplemented by

an EI TC in the amount of $2,750, bring ing he r annua l income to $9,644. The EI TC thus repre sented roug hly

29% of he r annua l income. Congr ess and the c ourts have strug g led with how to conce ptualize the EI TC. Fr o m the perspe ctive of the I nterna l Revenue Ser vice, it is tre ated as a ref

und of tax. From the per spective ofPag e 7 of 8

the ov e ra ll p ub lic we lf

are sy ste m, i t ha s c ome to r e pla c e pr e vio us dir e c t pu bli c a ssi sta

nc e be ne fi ts. But fr om the perspe ctive of qua lified, workingindividuals, it functions as a wag e supplement. The Tr ustee a rg ues that the EI TC “i s n o t a pay ment owed to the De btor for se rvice s perf ormed a nd thus, is not ex empt under [Ohio Rev. Code Ann. § 2329.66(A)( 13)].” (Appe llee B r. 4.) His primary

argument relies upon the “ plain meaning ” of the statute – “the De btor’s entitlement to the Tax Refund was [not ] the result of services performe d by the Debtor .” (A

ppellee B r. 5.) The Trustee further argues that the EI TC is a tax ref und and thus not persona l ear nings, a s if it must be one or the other. The outcome of this cas e d o es not turn on whether the EI TC is a tax ref

und, howeve r. Exe mpt ion s are to b e lib e ra lly c on str ue d in fa vo r o f t he de bto r. Th e ta sk

of the Pane l is to de te rm ine wh e the r t

he Oh io s ta tut e is c ap ab le of beingrea d so as to include the EI TC. The De btor is corre ct in saying that unle ss she had perf ormed service s for her employ er, she would not have been entitled to the EI TC. This does not mean, howe ver, that the EI TC is personal ea rnin gs within the meaning of t he Ohio statute. Althoug h it could be said that the De btor bec ame entitled to the EI TC as the re sult of service s she per formed f or her employ er, w e ca

nnot say that she earned the EI TC. A worke r earns his wag es by his labor, pursuant to a c ontrac t betwee n the worke r and his employ er by wh ic h th e wo rk e r o ff

e rs his se rv ic e s in e

x c ha ng e for his wag es. I n no sense c an we say that the EI TC is given in exc hange for labor. This rea ding is consistent with Ohio Revised Code § 2716.01, which, as note d previously , define s “per sonal ear nings” for purposes of gar nishment as “money

or any other consideration or thing of value, that is pa id or due to a pe rson in e

x c ha ng e for work, labor , or pe rs on a l se rv ic e s p ro vid e d b y the pe rs on

to an e mpl oy e r. ” (E mph a sis a dd e d) . M or e ov e r, thi s
rea ding is c onsistent with th e la n g uag e which f

ollows the words “pe rsonal ea rning s” in Ohio Revised Code § 2329.66(A) (13), “ owed to the pe rson for se rvice s.” The Pane l’s interpre tation, along with that of the bankr uptcy court, is supported by

a dec ision

o f th e b an kr

u p tc y c o u rt in th e So u th e r n D is tr ic t o f O h io

. S

ee In re Minton , 348 B.R. 467, 472 (B ank r. S.D . O hio 20 06 ). I t is a lso in lin e wi th de c isi on s of the Te nth Cir c uit B ank ru ptc y Ap pe llatePag e 8 of 8

Panel construingsimil ar e x emption provis ions under Wy oming a nd Oklahoma law

. Se e In re Trudeau , 2 37 B .R. 80 3, 80 6 ( B .A .P. 10 th C ir . 1 99 9) (p ane l c on c lud ingthat E I TC i s n ot “ e arn ing s”

un de r Wyomi nge xemp tio n s ta tut e ); In re Dic kerson, 227 B.R. 742, 746 (B .A.P. 10th Ci r. 1998) (pane l c oncluding that EI TC is not “earning s from per sonal servic es” unde r Oklahoma exemption statute). The De btor argues that the EI TC is a wag e supplement a nd thus s h o u l d b e co n s idere d as persona l ear

nings f or purpose s of sec tion 2329.66 ( A ) ( 1 3 )

. T h e D e b tor makes a compelling argument that th e EI TC should be e xemp t un de r t he state ’s e xemp tio n s ta tut e s b e c a us e of the imp or tant p ub lic fu nc tio n tha t it se rv e s. Th e De bto r d oe s n ot o ff e r a c omp e lli ngargume nt t

hat th e EI TC is exempt
un de r p re se nt l aw, ho we ve r. I n thi s ins tanc e , the De bto r a sk s tha t the Pane l tr e a t th e EI TC as if it

we re e arn ing s. Un fo rt

un a te ly , th is i s a

po lic y argume nt int e nd e d to br inga re su lt that is re se rv e d to the leg islature.

CO NC LU SION For the fore g oing r easons, the Pane l concludes that rea d in the light m o s t favor able to the Debtor, O hio Revised Code § 2329.66(A) (13) is not capa ble of the rea ding urg ed by the Debtor . The EI TC is not exempt pursuant to that section bec ause it does not constitute “pe rsonal ea rning s owed to the person f

or ser vices.” The de cision of the bankr uptcy court is AF FI RMED.