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Debtors will get to keep one year of earned income tax credits when filing bankruptcy in Kansas. A new law went into effect April 14, 2011, granting the exemption. This change in the law will prevent bankruptcy trustees from taking the portion of income tax refunds that is EITC, a valuable benefit for low to moderate income, working people, most of whom have minor children at home.
SENATE BILL No. 12
AN ACT concerning civil procedure; relating to bankruptcy;
exempt property; earned income tax credit.
Be it enacted by the Legislature of the State of Kansas:
Section 1. 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. 2010
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.
Sec. 2. This act shall take effect and be in force from and after
its publication in the Kansas register.
(Published in the Kansas Register April 14, 2011.)
Prior to the enactment of Senate Bill 12, bankruptcy trustees took earned income tax credits and tax refunds for their fees and for creditors’ claims. Tax refunds are the most commonly seized assets in Kansas consumer bankruptcy cases. The amount forfeited by individual debtors was substantial, but the amount distributed to creditors is relatively low, often 1 or 2% of their claims.
The law limits the bankruptcy exemption to the right to receive one year of earned income tax credits and does not prevent government offset of the credits for child support collection. Bankruptcy trustees will still be able to take tax refunds not attributable to earned income tax creditors from debtors.
The Earned Income Tax Credit or the EITC is a refundable federal and Kansas income tax credit for low to moderate income working individuals and families. According to the Internal Revenue Service, Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they do not have a filing requirement.
Our thanks goes to Kansas Senator John Vratil, R-Leawood, for sponsoring SB12. The bill passed unanimously in the Senate and nearly so (118 to 5) in the House of Representatives. Testifying in favor of the bill were Marilyn M. Harp, executive director of Kansas Legal Services, and attorneys John Hooge of Lawrence, Paul Post of Topeka and Kansas Bankruptcy Information blogger Jill Michaux of Topeka.
Certain dollar amounts in the bankruptcy code are adjusted every three years for changes in the cost of living. The next change will be April 1, 2010. 2010 Federal COLA adjustments
TAX REFUND ASSIGNMENTS AND CHAPTER 7
In re: Sydmark, Case No. 06-41218
In re: Black-Watkins, Case No. 05-42439
June, 2008, Judge Karlin
Lamie v. US and Redmond v. Lentz, Hodes and Wagers redux. Assignment of a tax refund does not divest the estate of an interest in them, even though UCC1 was filed. In a Chapter 7 case, refunds, after subtraction of a flat fee, must be turned over to Trustee.
Avoidance: The Bankruptcy Code permits the debtor to eliminate (avoid) some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Most judgment liens that have attached to the debtor’s home can be avoided if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. This is sometimes called “lien stripping.” For more, see Lien Avoidance and Lien Stripping.
Assets. Assets are every form of property that the debtor owns. They include such intangible things as business goodwill; the right to sue someone; or stock options. The debtor must disclose all of his assets in the bankruptcy schedules; exemptions remove the exempt assets from property of the estate.
I am frequently asked by people who are thinking of filing bankruptcy, “Will I lose my house if I file bankruptcy?” The fear of losing everything in bankruptcy is very real.
Fortunately, in Kansas the protection our law has for your home is in our state constitution and statutes. That is quite different from other states, Missouri, for example.
If you are entitled to claim the Kansas homestead exemption, it is unlikely you will lose your home for filing bankruptcy. Most of my clients who lose their homes, do so because they can’t afford to pay the mortgage payments and real estate taxes. Bankruptcy is not what causes people to lose their homes in Kansas usually.
There are some situations, which are rare, fortunately, when the bankruptcy trustee might be able to attack your homestead–the reasons are too complicated for a general information blog. Discuss the history of your home ownership with your attorney to put your mind at ease. Your attorney can analyze your circumstances and advise you of your rights so you can quit worrying.
Kansans in financial distress often ask, “Will I will lose my home if I file bankruptcy?“ The simple answer is that most Kansans do not lose their home if they file for bankruptcy. We are lucky in Kansas to have a homestead law that protects one acre of land in the city and 160 acres of land in the country from forced sale. There is no limit on the dollar value of the homestead.
The longer answer to the question, though, is that some Kansans filing for bankruptcy relief will lose their homesteads to mortgage foreclosure, but probably not to the bankruptcy. Occasionally, bankruptcy filers lose their homes in bankruptcy because their home does not qualify for Kansas homestead protection or other exception to the general rule.
Kansas homesteads are not exempt for debtsContinue Reading
Yes, both wage and bank account garnishments can be stopped by filing bankruptcy. Garnishments after the bankruptcy is filed violate the automatic stay.
Ideally, you will file bankruptcy before the garnishment order is served on your employer or bank so none of your money is seized. But, if a garnishment order is already in place, seizure of post-bankruptcy wages and account funds is stopped. You won’t get the money back that has already been seized, but future seizures are banned.
In Kansas, wage garnishments are continuing Continue Reading
Jan Hamilton Trustee
Jan Michael Hamilton, standing chapter 13 bankruptcy trustee for cases filed in Topeka, was inducted into the American College of Bankruptcy Friday. Hamilton was in the private practice of law from 1973 through 1999 when he was named to the trustee post.
Hamilton traveled to Washington, D.C., for the ceremony at the U.S. Supreme Court building. Thirty three attorneys and judges were in the 20th class inducted into the college.
The American College of Bankruptcy is an honorary associationContinue Reading
Question: Is my retirement account I have worked hard for all my life down the drain if I file bankruptcy? Generally, retirement accounts are protected in bankruptcy and you get to keep them in Kansas.
KPERS, Kansas deferred compensation plan, Social Security, federal civil service, 401(k) plans, IRAs, Roth IRAs, 403(b) plans are types of retirement plans that are exempt from the reach of creditors and bankruptcy trustees.
As with all things bankruptcy, the answer to this question actually depends on the facts of your specific circumstances. Continue Reading
