Source: https://phillipsandthomas.com/2015/03/22/exemption-of-child-tax-credits-and-earned-income-credits-in-bankruptcy/
Timestamp: 2019-04-22 17:10:45+00:00

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What happened was this. The Debtor filed a Chapter 13 case. On her Schedule C (“Property Claimed as Exempt”), Debtor claimed exempt, as a “public assistance benefit” under RSMo. § 513.430.1(10)(a), the portion of her 2012 federal income tax refund that was attributable to a “Child Tax Credit” allowed under 26 U.S.C. § 24. The Chapter 13 Trustee disagreed with this position, and objected to the Debtor’s exemptions.
The bankruptcy court agreed with the Chapter 13 Trustee, stating: “The fact the additional [Child Tax Credit] is available as a refund for taxpayers whose income places them out of range for most public assistance benefits available to Missourians is a sufficient basis to conclude that the additional [Child Tax Credit] is not an exempt ‘public assistance benefit.” The debtor then appealed.
The bankruptcy estate, the B.A.P. continued, includes contingent interests in future payments, such as tax refunds. In re Law, 336 B.R. 780, 782 (B.A.P. 8th Cir. 2006). The bankruptcy estate also includes the refundable portion of the child tax credit allowed under 26 U.S.C. § 24. Id. at 783. The debtor, however, can then claim certain property to be exempt, which has the effect of placing it outside the bankruptcy estate. In re Benn, 491 F.3d 811, 813 (8th Cir. 2007).
In determining exemptions, the bankruptcy courts will normally look to state law. In most situations in bankruptcy cases in Kansas and Missouri, the exemptions are created by state law. Under the Missouri statutes, a debtor may claim exempt “[a] Social Security benefit, unemployment compensation[,] or a public assistance benefit.” RSMo. §513.430.1(10)(a).
The debtor did not argue that the portion of her 2012 federal income tax refund that is attributable to the child tax credit is either a “Social Security benefit” or “unemployment compensation.” Thus, the issue turned on whether that portion of her refund is a “public assistance benefit” within the meaning of RSMo. §513.430.1(10)(a). This was the question.
Merriam-Webster defines “public assistance” as “government aid to needy, aged, or disabled persons and to dependent children.” Merriam-Webster’s Collegiate Dictionary 1005 (11th ed. 2012). Random House defines it as “government aid to the poor, disabled, or aged or to dependent children, as financial assistance or food stamps.” The Random House Dictionary of the English Language 1563 (2nd ed. 1987). Oxford Press defines it as “government benefits provided to the needy, usually in the form of cash or vouchers.” New Oxford American Dictionary 1411 (3rd ed. 2010).
The B.A.P. concluded that none of these definitions supported the debtor’s interpretation of RSMo. §513.430.1(10)(a). “Public assistance” is more of an aid to the needy, impoverished, or the disabled. The debtor was none of these.
In other words, the debtor’s position was not supported by any current authorities.
It is worth noting that the state of Kansas, unlike Missouri, has specifically exempted a debtor’s EIC (earned income tax credit). This exemption became effective in 2011. It has been upheld by the bankruptcy courts in Kansas, despite a strenuous attack the some bankruptcy trustees. In a recent case decided by Robert Nugent, U.S. Chief Bankruptcy Judge for Kansas, on February 13, 2014, (In Re: Myers, et al, Case No. 11-12155), Judge Nugent upheld the exemption.
The exemption of tax refunds, or portions of refunds, is a complicated issue and depends on what state you live in, and what part of the refund is being considered.
This entry was posted in Chapter 13 Bankruptcy in Kansas City, Chapter 7 Bankruptcy in Kansas City and tagged B.A.P. case 13-6029, child tax credit bankruptcy, earned income tax credit bankruptcy kansas, EIC credit missouri bankruptcy, In Re Pepper Hardy by bankruptcyinfokc. Bookmark the permalink.

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