In re James

406 F.3d 1340 (11th Cir. 2005); Clearinghouse Number: 55933

Description

Earned Income Tax Credit Payments May Be Excluded from a Bankruptcy Estate Under a Personal Property Exemption, Eleventh Circuit Holds

Abstract

The Eleventh Circuit held that earned income tax credit (EITC) payments were excluded from the bankruptcy estates under the state personal property exemption. In consolidated appeals, Chapter 7 debtors sought protection under the state personal property exemptions for their 2002 federal earned income tax credit payments. Objecting to the exemption, the bankruptcy trustee argued that an EITC payment did not qualify as “public assistance” under state law and thus was not exempt personal property and that a lump-sum EITC payment was not public assistance. The Eleventh Circuit stated that the EITC was enacted to reduce the disincentive to work caused by the imposition of social security taxes on earned income, to stimulate the economy by funneling funds to persons likely to spend the money immediately, and to provide relief for low-income families hurt by rising food and energy prices. Looking at the legislative meaning, the Eleventh Circuit concluded that, because the EITC was enacted to provide relief for low-income families, it qualified as public assistance. The Eleventh Circuit further explained that Alabama had exercised the opt-out provision under the Bankruptcy Act, 11 U.S.C. § 522(b), and created its own exemptions for individual debtors. Section 522(b) provides each state with the power to “opt out” of the exemptions under federal bankruptcy law and to create its own exemptions. The Eleventh Circuit concluded that the plain meaning of the language of the state personal property exemption law indicated that EITC payments, constituting public assistance payments to needy persons, were not allowed to pass to the trustee in the case of bankruptcy.

Additional Information

Attorney Information
Docket Date
2005-04-21 05:00:00+00:00

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