Source: https://supreme.justia.com/cases/federal/us/417/642/
Timestamp: 2019-06-16 03:22:26
Document Index: 449003111

Matched Legal Cases: ['§ 70', '§ 70', '§ 110', '§ 6', '§ 24', '§ 1671', '§ 1672', '§ 1672', '§ 1672']

Kokoszka v. Belford :: 417 U.S. 642 (1974) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 417 › Kokoszka v. Belford
on the questions of whether an income tax refund is "property" under § 70a(5) of the Bankruptcy Act [Footnote 1] and whether, assuming that all or part of such tax refund is property which passes to the trustee, the Consumer Credit Protection Act's [Footnote 2] limitation on wage garnishment serves to exempt 75% of the refund from the jurisdiction of the trustee. [Footnote 3]
On January 5, 1972, petitioner filed a voluntary petition in bankruptcy. With the exception of a 1962 Corvair automobile which the trustee abandoned as an asset upon the bankrupt's payment of $25, the sole asset claimed by the trustee in bankruptcy was an income tax refund entitlement for $250.90. On February 3, 1972, the referee in bankruptcy entered an ex parte order directing petitioner to turn the refund over to the trustee upon its receipt. The bankrupt moved to vacate that order and, after a hearing, the referee denied the motion. In mid-February, 1972, petitioner filed his income tax return for the calendar year 1971. Several weeks later, he received his refund check from the Internal Revenue Service. Upon its receipt, petitioner complied with the order of the trustee but filed a petition for review of the referee's decision in the United States District Court. [Footnote 4] The District Court denied relief. Petitioner was granted
Id. at 382 U. S. 379, quoting Fisher v. Cushman, 103 F. 860, 864 (CA1 1900). In determining the term's scope -- and its limitations -- the purposes of the Bankruptcy Act "must ultimately govern." 382 U.S. at 382 U. S. 379. See also Lines v. Frederick, 400 U. S. 18 (1970); Local Loan Co. v. Hunt, 292 U. S. 234 (1934).
Credit Protection Act. The Act provides that no more than 25% of a person's aggregate disposable earnings [Footnote 8] for any workweek or other pay period may be subject to garnishment. A trustee in bankruptcy takes title to the bankrupt's property "except insofar as it is to property which is held to be exempt. . . ." Bankruptcy Act, § 70a, 11 U.S.C. § 110(a). Another section provides that the Act "shall not affect the allowance to bankrupts of the exemptions which are prescribed by the laws of the United States. . . ." Bankruptcy Act § 6, 11 U.S.C. § 24. Petitioner argues that the Consumer Credit Protection Act's restrictions on garnishment, 15 U.S.C. § 1671 et seq., are such an exemption. In essence, the petitioner's position is that a tax refund, having its source in wages and being completely available to the taxpayer upon its return without any further deduction, is "disposable earnings" within the meaning of the statute. 15 U.S.C. § 1672(b). He further argues that the taking of custody by the trustee is a "garnishment," since a bankruptcy proceeding is a "legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt." § 1672(c).
Brown v. Duchesne, 19 How. 183, 60 U. S. 194 (1857). An examination of the legislative history of the Consumer Protection Act makes it clear that, while it was enacted against the background of the Bankruptcy Act, it was not intended to alter the clear purpose of the latter Act to assemble, once a bankruptcy petition is filed, all of the debtor's assets for the benefit of his creditors. See, e.g., Segal v. Rochelle, 382 U. S. 375 (1966). Indeed, Congress' concern was not the administration of a bankrupt's estate but the prevention of bankruptcy in the first place by eliminating "an essential element in the predatory extension of credit resulting in a disruption of employment, production, as well as consumption," [Footnote 9] and a consequent increase in personal bankruptcies. Noting that the evidence before the Committee "clearly established a causal connection between harsh
The Court of Appeals held that the terms "earnings" and "disposable earnings," as used in 15 U.S.C. § 1672, 1673, did not include a tax refund, but were limited to "periodic payments of compensation, and [do] not pertain to every asset that is traceable in some way to such compensation." 479 F.2d at 997. This view is fully supported by the legislative history. There is every indication that Congress, in an effort to avoid the necessity of bankruptcy, sought to regulate garnishment in its usual sense as a levy on periodic payments of compensation needed to support the wage earner and his family on a week-to-week, month-to-month basis. There is no indication, however, that Congress intended drastically to alter the delicate balance of a debtor's protections and obligations during the bankruptcy procedure. [Footnote 11] We
Opinion Announcement - June 19, 1974