by In Cohen v. Garcia-Morales, No. 24-1384 (10th Cir. Aug. 19, 2025), the Tenth Circuit addressed whether a Chapter 7 debtor’s federal tax refund, traceable to a refundable child tax credit, must be turned over to the bankruptcy trustee. Affirming both the bankruptcy and district courts, the panel held that the refund was wholly exempt under Colorado law.
The Case Below
Jose L. Garcia-Morales filed for Chapter 7 in Colorado in 2021. His 2021 federal tax return showed $8,140 in withholdings, a $1,800 refundable child tax credit, and a $1,455 refund. The Chapter 7 trustee sought turnover of the refund, arguing that it should be prorated between tax withholdings (nonexempt) and the refundable credit (exempt). The bankruptcy court disagreed, ruling that because the refundable child tax credit was a “but-for” cause of the refund, the entire $1,455 was exempt under Colo. Rev. Stat. § 13-54-102(1)(o). The district court affirmed.
Trustee’s Position
On appeal, the trustee argued that the statute exempts only the portion of a refund “attributed to” a child tax credit, not the entire refund whenever a credit is present. Relying on In re Borgman, 698 F.3d 1255 (10th Cir. 2012), he urged a pro-rata allocation methodology, contending that applying a tort-like “but-for causation analysis “makes little sense” in this context. In his reply, the trustee criticized both debtor and amici for relying on policy-based arguments, maintaining that the statute’s plain text required mathematical allocation and that extrinsic legislative history or policy considerations should not control.
Debtor’s Position
The debtor responded that the statute’s plain meaning supported the bankruptcy court’s approach. “Attributed to” should be understood as requiring a “but-for” causation analysis: if the refund would not exist but for the refundable child tax credit, then the full refund is exempt. He further argued that Borgman’s discussion of attribution was dicta, that later legislative amendments repudiated that approach, and that tracing methods proposed by the trustee were inapplicable to a debtor-creditor relationship.
NACBA/NCBRC Amicus Position
Amici NACBA and NCBRC filed a brief supporting Garcia-Morales. They emphasized the historic role of exemption statutes in preserving a debtor’s fresh start and protecting family support. Their brief provided an extensive review of the history and impact of the federal child tax credit, particularly its function as an antipoverty tool. They argued that denying exemption would undermine the statute’s remedial purpose and effectively penalize families for relying on benefits designed to ensure child welfare.
The amici brief was written by Prof. Michael D. Sousa, Professor of Law, University of Denver Sturm College of Law.
The Tenth Circuit’s Decision
Judge Federico, writing for the panel, affirmed. The court held that the Colorado statute exempts “the full amount of any federal or state income tax refund attributed to” a child tax credit. Applying a plain-meaning analysis, the panel agreed with the bankruptcy and district courts that the refundable credit was a “but-for” cause of the refund. Because the $1,455 refund would not have existed without the $1,800 refundable child tax credit, the entire refund was exempt.
The court rejected the trustee’s reliance on Borgman. That case had addressed nonrefundable credits and defined “refund,” but its dicta about apportionment did not control here. The panel also declined to adopt the trustee’s proposed pro-rata approach, noting that it would effectively rewrite the statute.
Significance
This decision provides important clarity for Colorado debtors claiming exemptions for tax refunds tied to refundable credits. By embracing a “but-for” causation analysis, the Tenth Circuit reinforced that exemption statutes should be interpreted to protect the debtor’s fresh start, especially where benefits like the child tax credit are involved. For families in bankruptcy, the ruling ensures that refundable credits designed to support child welfare remain shielded from creditors’ claims.
Opinion and Briefs
Cohen v Garcia – 10th Circuit Opinion
Appellant’s Brief
Appellee’s Brief
Amici Brief
Reply Brief