Fighting to Keep Earned Income Tax Credits Exempt

10th Circuit Courtroom 1

Our attorneys continue to fight for Kansas debtors to keep one year of federal and state earned income tax credits (EITC) exempt  from bankruptcy trustees and creditors. We traveled to Denver for oral argument  before the Bankruptcy Appellate Panel of the 10th Circuit. Bruce Barry of Manhattan argued in favor of the law for his clients, Dustin and Brandi Westby.

The Kansas Legislature adopted a new exemption for EITC in bankruptcy cases.  The law went into effect April 14, 2011. Chapter 7 bankruptcy trustees in Topeka and Wichita have challenged the law, and the debtors’ right to retain one year of EITC in their bankruptcy cases, since.

K.S.A. 60-2315 – 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
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.

The bankruptcy judges in both divisions ruled against the trustees.  Three trustees have appealed to higher courts.

• Judge Janice Miller Karlin’s ruling in the Westby case in Topeka
• Judge Nugent’s ruling in the Hudson and Lea cases in Wichita

The Kansas Attorney General also is defending the constitutionality of the EITC exemption statute.

Here is the motion and proposed brief Jill Michaux filed last week in the Hudson appeal to the Kansas District Court for permission to file a friend of the court brief in support of debtors by the National Association of Consumer Bankruptcy Attorneys (NACBA). Thanks go to Tara Twomey and Lisa Sharon of the National Consumer Bankruptcy Rights Center for writing the brief.