IN RE: ROBERT W.
GRIFFIN, JR. and TOMMIE LEE GRIFFIN
UNITED
STATES BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
LONDON
DIVISION
IN RE: CASE
NO. 04-61975
ROBERT W.
GRIFFIN, JR. and TOMMIE LEE GRIFFIN
DEBTORS CHAPTER
7
MEMORANDUM
OPINION AND ORDER
GRANTING
IN PART AND DENYING IN PART
DEBTORS’
MOTION TO DECLARE CHILD TAX CREDIT
A
NON-ASSET OF THE ESTATE
The court having reviewed the entire
record herein, including argument made at the hearing on December 22, 2005, and
being sufficiently advised hereby orders debtors’ motion to declare child tax
credit a non-asset of the estate is granted in part and overruled in part
pursuant to the well established law of this circuit.
Debtors ask this court to examine
the federal Child Tax Credit[1]
(CTC) and
find the debtors’ 2004 tax refund in the amount of $3821 a non-asset of the
estate.
As discussed in
debtors’ Motion (document # 18) this court has previously ruled that the
portion of a debtor’s tax refund resulting from the federal Child Tax Credit
may not be exempted as public assistance pursuant to KRS 205.220(3). Debtors instead argue
that a taxpayer has no right to the CTC until the conclusion
of the tax
year. See 26 U.S.C. § 24(f)
(taxable year must be full year). Since
debtors filed their petition in bankruptcy prior to the end of the 2004 calendar
year, the argument contends debtors had no right to the CTC at the time of
filing. Therefore, the debtors conclude
the CTC portion of the refund is after-acquired property and pursuant to 11
U.S.C. § 541 is not property of the estate.
Debtors also attempt to exempt $1780 of the refund as provided by KRS §
427.160. The court disagrees with both
approaches.
Debtors rely on a 2004 decision of
the Nebraska Bankruptcy Court, In re Schwartz¸ 314 B.R. 433
(Bkrtcy.D.Neb.2004) and while the court finds the discussion in Schwarz
informative Schwarz is not binding on this court. This court is bound by decisions of
the Sixth Circuit Bankruptcy Appellate Panel (BAP). The BAP in Booth v. Vaughan, In re Booth, 260 B.R. 281
held that the debtor’s contingent interest in a profit-sharing payment was
property of the estate because the payment was “sufficiently rooted in his
pre-petition employment” even though the interest was unenforceable on the
petition date.
In
the matter at hand, the Griffins had two factors controlling whether or not
they would receive the CTC. First, the
debtors must wait until the end of the tax year before filing a tax return and
second, the debtors must actually file the return. The likelihood of both occurring was exceeding high and in fact
both contingencies were realized soon after the petition was filed. Relying on the analysis in Booth and
that of the Supreme Court in Segal v. Rochelle, 382 U.S. 375, 379, this
court finds the Child Tax Credit is “sufficiently rooted” in debtor’s
pre-petition earnings to be considered property of the estate despite the
contingent nature of the credit on the date the petition was filed.
Having found the Child Tax Credit is
indeed property of the bankruptcy estate, the court must now determine how much
of the refund can be exempted and retained by the debtors.
The
court limits debtors’ exemption pursuant to KRS § 427.160 to $1000 instead of
the $1780 as scheduled. Debtor husband,
as the wage-earning spouse, may use the maximum allowed by KRS § 427.160 toward
an exemption of the tax refund. Courts
in this circuit have consistently held “the non wage earning spouse has no
property interest in, and therefore is entitled to no exemption in the proceeds
of the tax refund.” See In re Taylor,
22 B.R. 888, 889, (Bkrtcy.N.D.Ohio1982).
The tax refund is a return of prior withholdings and debtor wife lacks
paid employment and associated withholdings and as such she cannot have a
return of withholdings in the form of a tax refund.
In addition to the $1000, debtors
may exempt the portion of the refund attributable to the Earned Income Credit
or $849 as a form of public assistance pursuant to
KRS
205.220(3). That brings the exempt portion of debtors’
tax refund to $1849, leaving the remaining $1972 as nonexempt and a potential
asset of the estate.
The final calculation the court must
make involves prorating the nonexempt portion of the refund into the portion
attributable to wages earned pre-petition and the portion attributable to wages
earned post-petition. Because the wages
earned post-petition are after acquired, the portion of the refund associated
with these wages is also considered after acquired and a non-asset of the
estate. See In re Thomas,
14 B.R. 759 (Bkrtcy.E.D.Mich.1981); In re Dussing, 205 B.R. 332
(Bkrtcy.M.D.Fla.1996). Debtors’
petition was filed on December 8, 2004, twenty-four days before the end of the
year. The court determines a proration
factor by dividing the 24 post-petition days by 365, the total number of days
in a year.[2] When the nonexempt portion of the tax
refund, potentially $1972, is multiplied by the proration factor of 0.0658, the
portion of the refund attributable to after acquired earnings is $129.76. The remaining portion of the refund or
$1842.24 is an asset of the estate being attributable to income produced
pre-petition.
Based
on the foregoing, debtors’ are entitled to retain $1978.76 of the 2004 income
tax refund. Debtors shall turn
over $1842.24 to the trustee as a
nonexempt asset of the bankruptcy estate within 10 days of the date of this
order.
It is so ordered.
Copies to:
Debtors
Ross E. Murray, Esq.
Maxie E. Higgason, Jr., Trustee
[1] Title 26 – Internal Revenue Code, Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part IV – Credits Against Tax, Subpart A – Nonrefundable Personal Credits
[2]
The court is aware 2004 was a leap year
containing 366 days but uses 365 days for consistent results in the formula.