Keeping Tax Credits In Bankruptcy

: Chris Lee Law Firm

  Filed under: Taxes

earned income creditThere are cases in which the bankruptcy process requires that some funds be turned over to help satisfy debts. Some of these funds can include items such as tax refunds and earned income tax credits. However, a new Kansas law was passed in 2011 that made some big changes to the way bankruptcy proceedings now take place.

Surviving The Challenge

Effective as of April 14, 2011, a Kansas exemption law allows bankruptcy debtors to keep one year of earned income tax credits. The reasoning behind the law was that most debtors who receive, and depend on, these earned income tax credits are low-income workers such as single parents with dependant children. The idea was to help alleviate some of the potential risks involved in certain Chapter 7 cases, which may require that a debtor turn over such funds in order to resolve their debts or pay the necessary fees.

Since the law’s passing last year, the law has received some criticism from political officials, as well as have been challenged on constitutional grounds. The challenge is based on the grounds that the law violates the Uniformity and Supremacy Clauses of the U.S. Constitution, which essentially means that this law is deviates from the laws in other states to an unfair degree. However, the judge ruled in favor of the law stating, “Because the Kansas exemption statute is a state, rather than a federal¬†enactment on the subject of bankruptcy, this Court finds no Uniformity Clause¬†violation.”


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