UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

COVINGTON DIVISION

IN RE:

ADAM WAYNE SOWARD

MELISSA MICHELLE SOWARD

DEBTORS CASE NO. 00-22025

MEMORANDUM OPINION

This matter is before the Court on the Motion filed by the trustee on March 22, 2001, in regard to repayment of some portion of the debtors= income tax refunds for the 2000 tax year and the debtors= claimed exemptions. The debtors filed a Response on April 24, 2001, and the matter was heard on May 8, 2001. The parties were given the opportunity to submit memoranda in support of their respective positions, and the matter was taken under consideration by the Court.

The trustee had moved the Court for an order allowing him to repay the debtors the sum of $1,251.66 which represented the difference between the total of their federal and state tax refunds and the amount due the bankruptcy estate ($5,312.00-$4,865.34). The trustee noted, however, that the debtors claimed that they were entitled to an additional $1000.00 exemption by reason of their being entitled to the federal child tax credit.

The debtors were apparently entitled to take a $500.00 tax credit for each of their two children, and did so on their 2000 federal tax return. 26 U.S.C. '24(c)(1)(A)-(C). The trustee objected to this claim of additional exemption.

The debtors= response states, without support, that the child tax credit is the same as the earned income credit (AEIC@). This Court has previously held in In re Goldsberry, 142 B.R. 158, 159 (Bkrtcy.E.D.Ky. 1992) that the EIC is Apublic assistance@ under the Kentucky statute providing for exemption of public assistance benefits, and, thus, is exempt from a debtor=s bankruptcy estate. KRS 205.010(4); 205.220(3). The debtors maintain, again without support, that the child tax credit is also a form of public assistance, and that because their income falls below a certain level they are entitled to exempt it. They are incorrect on all counts.

The court in In re Dever, 250 B.R. 701 (Bkrtcy.D.Idaho 2000) was faced with a similar attempt by the debtors therein to exempt their federal child tax credit as public assistance under Idaho Code '11-603(4). The court pointed out that, unlike the EIC, the nonrefundable child tax credit was designed to benefit a large percentage of Americans, stating that Athere is no articulation in legislative history or case law that the main or primary purpose of the child tax credit was to assist or provide relief to low income families.@ At 705. The court further stated:

[T]he child tax credit benefits a broad range of taxpaying families, including those with low, middle, and even relatively high incomes. The child tax credit does not begin to phase out until their adjusted gross income reaches $110,000.

Certainly some debtors taking advantage of the child tax credit will have incomes at the low end of the continuum. But it is the public assistance nature of the benefit, and not the financial circumstances of the recipient, that drives the conclusion of whether '11-603(4) applies. To hold otherwise would mean that all legislative benefits poorer debtors receive would be exempt simply because they are poor.

At 706.

This Court therefore concludes that the child tax credit may not be exempted by the debtors as it is not, nor was it intended to be, a form of public assistance eligible for exemption under KRS 205.220(3), and it is hereby ordered that the debtors= claim for a $1000.00 exemption for their child tax credit is denied. The trustee is further directed to prepare an order providing for repayment to the debtors of sums due them in accordance with this Memorandum Opinion.

Entered this day of June, 2001.

By the Court -

Judge William S. Howard

Copies to:

Debtors

James A. Nolan, Esq., Trustee

William Bubenzer, Esq.