“Public Assistance Benefit” Not Tied to Wealth of Debtor

Posted by NCBRC - September 19, 2014

The definition of “public assistance benefit” for bankruptcy exemption purposes is not tied to the affluence of the debtor. In re Vazquez, No. 13-32174 (Bankr. N.D. Ill. Sept. 8, 2014). In Vazquez, the debtor scheduled a tax refund of $10,576.00 in his chapter 7 bankruptcy and sought to exempt $3,000.00 representing the child tax credit portion of that amount pursuant to Illinois Public Assistance Benefit Exemption, 735 ILCS 5/12 1001(g). The trustee moved to disallow the exemption arguing that the child tax credit did not qualify as a public assistance benefit because it did not necessarily apply to the neediest taxpayers. Citing In re Koch, 299 B.R. 523 (Bankr. C.D. Ill. 2003), the trustee distinguished between refundable and nonrefundable tax credits, arguing that because nonrefundable tax credits only reduce the income from which taxes are assessed, it benefits taxpayers with higher income. Likewise, the panel in In re Hardy, 503 B.R. 722 (B.A.P. 8th Cir. 2013), found that a child tax credit which did not adhere to the benefit of the most needy could not qualify as a public assistance benefit. From these cases, the trustee tied the definition of “public assistance benefit” to the financial status of the beneficiary.

The court found that “public assistance” is defined to include government aid for dependent children and that this definition is not tied to the relative neediness of the recipient. By imposing an additional condition of neediness the courts in Koch and Hardy overstepped into legislative waters. The court took issue with the Koch court’s erroneous assumption that “the government extends public assistance only, or primarily, to those of limited means.”

Citing a recent analysis, the court also questioned the trustee’s premise that the child tax credit, as it currently stands, does not necessarily benefit the most needy taxpayers. Margot L. Crandall-Hollick, “The Child Tax Credit: Current Law and Legislative History,” CONGRESSIONAL RESEARCH SERVICE, March 25, 2013, www.crs.gov. 7-5700, R41873. The article notes that over recent years, the child tax credit has been extended to permit refunds to less affluent taxpayers than those originally allowed.

Vazquez Bky ND Ill opinion


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  1. By NACBA Now on September 20, 2014 at 6:21 pm

    […] “Public Assistance Benefit” Not Tied to Wealth of Debtor […]

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