Child Tax Credit Protected Under Missouri Law

As we are reviewing cases to file, we look to see what kind of income tax refund that they will be receiving next year.  In Missouri and Kansas, the amount of tax refund is prorated to the date of filing.  Example:  If you file on the 250th day of the year then 250/365 (or in leap years 250/356) is prepetition and are part of the estate.  We work to exempt or prepare our clients to turn tax refunds over to the trustee or file a motion keep them in a chapter 13 case.  (That still may require that they pay over that amount over the life of the plan.)  In the past, the trustees often demanded the turn over of tax refunds that were earned income credit and child tax credit.  This is changed!  

In re:  Hardy v. Fink at the 8th Circuit 

In the Hardy case, Debtor filed for relief under Chapter 13 and sought to exempt $2,000 of child tax credit as public assistance benefits.  The Chapter 13 Trustee, Richard V. Fink, objected.  The bankruptcy judge agreed with the Trustee and ruled that the $2,000 was not exempt.  The judge reasoned that because the child tax credit was not just for the very poor that it was not a public benefit.  The Debtor appealed to the BAP and using the same logic it reached the same result.

More Protection for Missouri Bankruptcy Debtors 

The good news for Missouri Bankruptcy debtors is that the Debtor appealed the case to the 8th Circuit. The National Association of Consumer Bankruptcy Attorneys (NACBA) filed a brief in support of the Debtor.  After reviewing the intent of Congress to benefit low-income families in the history of the child tax credit law and all of the amendments to the law. The TH Circuit held that child tax credit is a public assistance.  The court explained that using the same reasoning, that Judge Federman used in In re: Corbett No. 13-60042 WL 134477 (Bankr. W.D.Mo. Apr. 2, 2013) to apply the new Missouri statute to exempt earned income credit applied to child tax credit. Therefore, child tax credit is now exempt as a public benefit in bankruptcy court in Missouri.

Thank You Tracy L. Robinson! 

I want to take this moment to thank Tracy and his staff for this gift for Missouri Debtors!  Congratulations Tracy on your big win! 

Susan Bratcher
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