Kansas EIC Bankruptcy Exemption Constitutional

A second  judge ruled Thursday that the new Kansas statute exempting one year of earned income tax credit from creditors  in bankruptcy proceedings  passes constitutional muster.

Hon.Robert Nugent, Chief Judge of the U.S. Bankruptcy Court for the District of Kansas, joined the previous ruling of his colleague, Hon. Janice Miller Karlin, in finding K.S.A. 60-2315 constitutional.  Chapter 7 bankruptcy trustees in  Topeka and Wichita have filed hundreds of objections to the use of the EITC exemption by debtors in bankruptcy. An appeal of the earlier ruling in the Topeka Division is pending before the Bankruptcy Appellate Panel for the  10th Circuit of the U.S. Court of Appeals in Denver.

Tax refunds and earned income tax credits have been collected from debtors to pay commissions to chapter 7 bankruptcy trustees and then pay a small dividend to creditors.  Under the new Kansas law, trustees will not be allowed to take the earned income tax credit portion of the tax refunds for the year of the bankruptcy case filing.  The law reduces substantially funds available for chapter 7 bankruptcy estates.

The exemption statute adopted by the 2011 Kansas Legislature “insures that a bankrupt Kansan’s earned income credit goes to pay the rent or buy her family food, not a prepetition creditor’s claim. All of this is consistent with the federal law and does not infringe upon the Constitution’s Supremacy Clause,” Judge Nugent wrote.

Both judges dismissed all the challenges to the exemption statute by the bankruptcy trustees and ordered the earned income tax credit refunds released to debtors. That is good news for hundreds of low income, working families in Kansas who desperately need the money to pay for their necessary living expenses.

Read Judge Nugent’s decision, In Re Lea, Case No. 11-11131. Read Judge Karlin’s decision, In Re Westby, Case No. 11-40986.

K.S.A. 60-2315  An individual debtor under the federal bankruptcy reform act of 1978 (11 U.S.C. § 101 et seq.), may exempt the debtor’s right to receive tax credits allowed pursuant to section 32 of the federal internal revenue code of 1986, as amended, and K.S.A. 2011 Supp. 79-32,205, and amendments thereto. An exemption pursuant to this section shall not exceed the maximum credit allowed to the debtor under section 32 of the federal internal revenue code of 1986, as amended, for one tax year. Nothing in this section shall be construed to limit the right of offset, attachment or other process with respect to the earned income tax credit for the payment of child support or spousal maintenance. History: L. 2011, ch. 25, § 1; Apr. 14.

Four chapter 7 bankruptcy trustees mounted an all-out attack on the newly enacted Kansas statute exempting the EITC  from creditors for debtors in bankruptcy, but failed to convince either  judge that the Kansas Legislature can’t make a law saying a citizen may keep earned income tax credits for one year away from her bankruptcy trustee and creditors. Jill Michaux filed a friend of the court brief in the Westby case for the National Association of Consumer Bankruptcy Attorneys (NACBA) and is c0-c0unsel with debtor attorney Bruce Barry of Manhattan in representing the Westbys in the appeal. The Kansas Attorney General, represented by Assistant Attorney General Derenda Mitchell, intervened in the cases to support the new law.

Photo Credit: flickr LicenseAttribution Some rights reserved by Fried Dough  David Defeats the Giant


Kansas Bankruptcy Filings Fall

Bankruptcy Filings Continue Decline

Bankruptcy filings in Kansas followed the national downward trend and declined for the past year.  There were 9648 bankruptcy cases filed in Kansas in the 12 months ending in June, a decline of 9.7%.
  • Chapter 7 – 6420 cases
  • Chapter 11 – 53 cases
  • Chapter 12 – 17 cases
  • Chapter 13 – 3158 cases
In Our Region
In the region, filings were down 10.9% in Colorado, 18.3% in New Mexico, 11.6% in northern Oklahoma, 19% in Nebraska and 16.2% in western Missouri.
For more detail, read Prof. Bob Lawless’s analysis on Credit Slips.  Here is the press release:  Bankruptcy filings for the 12-month period ending June 30, 2012, totaled 1,311,602 petitions, 14 percent less than the 1,529,560 filed in the 12-month period ending June 30, 2011, according to statistics released today by the Administrative Office of the U.S. Courts.
Business and Non-Business Filings
The majority of bankruptcy filings involve predominantly non-business debts. For the 12-month period ending June 30, 2012, non-business filings—where the debts are predominantly personal or consumer in nature—totaled 1,267,167, down 14 percent from the 1,477,426 nonbusiness bankruptcies filed in the 12-month period ending June 30, 2011.
Third Quarter of FY 2012
April, May, and June 2012 constituted the third quarter of the Judiciary’s 2012 fiscal year. The number of bankruptcies filed during those three months was 325,693, down 14 percent from the 379,790 filings in the same quarter of 2011.
Read the full article.

What is the Bankruptcy Code?

Bankruptcy Code. Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. When federal bankruptcy law conflicts with state law, federal law controls. Bankruptcy Code incorporating changes effective 10/17/05.

NPR Airs Story on Judicial Mortgage Modification in Chapter 13 Bankruptcy

Here is a report that aired on National Public Radio this morning about the judicial mortgage modification bill pending in Congress.

“On Capitol Hill, Democrats are supporting a bill that would let judges block home foreclosures. The measure would allow bankruptcy judges to alter home loans. Industry insiders say that would cause more harm than good, but economists disagree.”

Listen to today’s National Public Radio story

on judicial mortgage modification in chapter 13 bankruptcy.