“Public Assistance” Exemption Revisited

Posted by NCBRC - September 26, 2014

In contrast with the recently reported case, In re Vazquez, the BAP for the Eighth Circuit reiterated its analysis of what constitutes “public assistance,” under Minnesota exemption laws to take into consideration whether the recipient of the assistance is “needy.” Christians v. Dmitruk (In re Dmitruk), No. 14-6023 (B.A.P. 8th Cir. Sept. 15, 2014).

The difference may be not in philosophy, however, but in the specificity of the legislation involved. In Vazquez, the state statute did not offer a definition of “public assistance” so the court turned to the dictionary definition. That definition was “government aid . . . to dependent children,” without specific reference to need. On the other hand, the Minnesota exemption statute defines public assistance as “All government assistance based on need.”

The Minnesota statute went on to provide a non-exclusive list of possible assistance programs which may be considered to be need-based and, therefore, fall under the exemption. The trustee argued that the debtor’s tax refund based on the Minnesota Education Credit provided for in Minn. Stat. section 290.0674, was not a need-based tax benefit.

As it did in other cases, see, e.g., In re Hardy, 503 B.R. 722 (B.A.P. 8th Cir. 2013), the panel looked at the characteristics of the tax refund to determine whether it was intended to address the basic economic needs of low-income recipients. It found that the bankruptcy court had correctly determined that it was.

The Minnesota tax credit operates by permitting a $1,000 credit for each school-age child so long as the taxpayer’s income remains less than a specified amount. As the taxpayer’s income rises, the credit is reduced until it is eliminated altogether at a threshold income amount. Minnesota also allows a tax deduction for education-based expenses for qualifying taxpayers. Expenses for non-public school education qualify for the deduction but not for the credit. The tax credit is fully refundable and the taxpayer may receive a loan against the anticipated refund from participating financial institutions in order to meet educational expenses.

The court rejected the trustee’s characterization of the tax credit as promoting education for the citizenry rather than providing assistance based on need. The court contrasted the education tax credit with an In Forma Pauperis award; the former answers a basic need comparable to food and shelter, while the latter merely facilitates access to the courts.

The court concluded that “Because the Education Credit is available only to individuals with relatively low income, is a refundable credit (as opposed to a refund of overpayment of taxes) and because it is, in large part, intended to assist low-income individuals in obtaining quality education for their children, we conclude that it is a “direct payment[] or subsid[y] to address the basic economic needs of low-income recipients” in obtaining such quality education for their children.”

Dmitruk BAP 8th opinion


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