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.

Congress Considers Judicial Mortgage Modification in Chapter 13 Bankruptcy

The Helping Families Save Their Homes in Bankruptcy Act of 2009 is pending in Congress.  If passed, chapter 13 debtors will be able to  rewrite their delinquent mortgage loans by lowering the loan balance to the value of the home, reducing interest rates, eliminating the variable rate and fixing the interest rate, and stretching out the mortgage over 40 years.  The goal is to lower the payments enough to make them affordable for the borrower to keep the home and avoid foreclosure of the mortgage.

Mortgage bankers want your home not your money. They oppose the law change and are lobbying against the proposed legislation.

Save Your Home with Bankruptcy

Legislation is pending in Congress to change the law to allow judges to modify your home mortgage in chapter 13 bankruptcy. Delinquent mortgages could be stretched out to 40 years, principal due on the loan reduced to the value of the home, and adjustable rates changed to a low fixed rate if the Helping Families Save Their Homes in Bankruptcy Act of 2009 passes.  Judicial modification might lower the payments enough to make it possible to afford to stay in your home.

Contact your elected representatives today by email, phone or fax. This legislative, which President Barack Obama has pledged to sign, is on a fast track but opposed by the many in the mortgage and banking industries. Here is the contact information for contacting Congress: www.savehomewithbankruptcy.com/lobby.htm.

Foreclosure Fixes Failing


Near Half of Homeowners in “Loan Modification” Programs Face Higher Monthly Payments; Failure of Voluntary Industry Efforts Hikes Pressure on Incoming Obama Administration, New Congress to Clear Way for Court-Supervised Modifications.

WASHINGTON, D.C.//December 19, 2008//Much hyped “foreclosure prevention programs” relying on voluntary loan modifications are failing to reach a significant number of troubled homeowners and are often backfiring when they do so, according to newly updated research released today by the National Association of Consumer Bankruptcy Attorneys (NACBA). The across-the-board failure of these much ballyhooed “fixes” for the foreclosure crisis are expected to result in the new President and Congress facing considerable new pressure to clear the way for court-supervised loan modifications that will prove more beneficial for homeowners. [Read more…]

New Year's Resolutions for Resolving Debt

Here are five New Year’s resolutions my blogging colleague, Peter Orville of Upstate New York, made for people with debt problems, each highlighting an article found on the pages of Debt Law Network, Credit Law Network or Bankruptcy Law Network.

  1. Create an emergency fund.
  2. Don’t gamble.
  3. Don’t sign up with a “Debt Settlement” company.
  4. Seek advice from a good bankruptcy attorney.
  5. Don’t prepare and file a bankruptcy petition without a lawyer.

New Rule: Chapter 13 Mortgage Payments Through Trustee

The Kansas Bankruptcy Court adopted a new rule requiring chapter 13 debtors behind on mortgage debts when the bankruptcy case is filed to be paid through the trustee.  The rule goes into effect for cases filed on or after October 1, 2008.

Proponents of the new rule say the chapter 13 trustee records will aid the court in protecting debtors from charges for inappropriate fees and from false allegations of nonpayments.  Opponents of the new rule object to the chapter 13 fee (up to 10%) added to the to the mortgage payments, creating additional financial hardship for debtors.

Topeka Debtors Allowed Means Test Deduction for Cars With No Liens

EDITOR UPDATE:  This post is out of date.  Judge Karlin reverted to her original ruling in In re Law after the Pearson decision was vacated.  This issue is currently pending the the U.S. Court for the Tenth Circuit  so we should have a binding ruling soon.  December 13, 2009.

Topeka Bankruptcy Judge Janice Miller Karlin announced last week that she is reversing course and will follow the Pearson decision to allow debtors a means test deduction for ownership of a car without a debt against it.

Judge Karlin had earlier disallowed the car ownership deduction in In re Law, 2008 WL 1867971 (Bankr. D. Kan. 2008), following the decision by Kansas District Court Judge John W. Lungstrum in Wieland v. Thomas, 382 B.R. 793 (D. Kan. March 4, 2008), reversing Judge Robert D. Berger of Kansas City, KS, in In re Thomas, 2007 WL 2903201 (Bankr. D. Kan. Oct. 02, 2007). [Read more…]

Bankruptcy Income Guidelines to Increase Slightly October 1

It will be a little easier to qualify for bankruptcy relief when the income guidelines used for eligibility increase slightly on October 1.  A single Kansas earner will be able to make $894 more per year and qualify for chapter 7 bankruptcy relief.  A family of four will be allowed a $2036 more income per year in Kansas.

Here are the “means test” figures now in effect and the figures approved by the U.S. Trustee for bankruptcy cases file on October 1, 2008, or after.

  • 1 earner                       $38,594      $39,488
  • 2-person families    $52,989      $54,070
  • 3-person families    $58,075      $60,906
  • 4-person families    $69.831      $71,867
  • 5-person families    $76,731      $78,767
  • 6-person families    $83,631      $85,667
  • add $6,900 for each additional person [Read more…]

History of BAPCPA: Special Interest Legislation at Its Worst

BAPCPA (Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005) has been characterized as among the best (or worst depending on point of view) examples of special interest federal legislation ever passed by Congress. The act’s history is important:

Under pressure from creditor lobbying efforts, Congress and the Clinton administration in 1994 funded a bi-partisan blue ribbon panel dubbed the Bankruptcy Review Commission. Its mission was a comprehensive study of the bankruptcy system in response to creditor interests’ complaints of widespread but undocumented abuses.

Democrats’ poor showings in 1992 and 1994 elections left Congress controlled by Republicans. President Clinton agreed to a commission to find the facts. The credit industry argued a significant number of Americans had the “ability to repay” their debts, but egged on by greedy bankruptcy attorneys, debtors were choosing instead to slough off debt. Debtors were cast as well-to-do credit card abusers who were financially irresponsible, increasing the cost of borrowing for others. Little or no evidence was ever offered to back up creditors’ arguments. [Read more…]

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