In re Parker

• Decision Date: 14 September 2006
• Docket Number: No. 05-29158.,05-29158.
• Citation: 352 B.R. 447
• Parties: In re Qiana M. PARKER, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

352 B.R. 447

In re Qiana M. PARKER, Debtor.

No. 05-29158.

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

September 14, 2006.

George W. MacDonald, Cleveland, OH, for Debtor.

Dettelbach Sicherman & Baumgart, Cleveland, OH, for trustee.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Chief Judge.

The matter before the Court is the motion of the Chapter 7 Trustee, ("Trustee") for an order requiring Qiana M. Parker ("Debtor") to turnover certain non-exempt assets (the "Motion"). The Trustee also objects to the Debtor's claimed exemption in certain tax refunds which include an Earned Income Tax Credit (EITC) and Child Tax Credit (CTC): The Debtor opposes the Trustee's motion and objection to exemption.

The Court acquires core matter jurisdiction over the instant matter pursuant to 28 U.S.C. §§ 157(a) and (b), 28 U.S.C. § 1334 and General Order No. 84 of this District. Upon examination of the parties' respective briefs and supporting documentation, and after conducting a hearing on the matter, the following findings of fact and conclusions of law are hereby rendered:

*

Debtor filed for voluntary relief under Chapter 7 on October 10, 2005. During the § 341 meeting of creditors held on December 9, 2005, the Trustee requested that the Debtor provide her 2005 federal and state tax returns (the "Returns") no later than February 20, 2006. The request was acknowledged by the Debtor, however she failed to provide the returns on or before February 20, 2006. The Trustee's office sent a letter to the Debtor's attorney on February 23, 2006 requesting that the returns be provided within ten days.

By March 29, 2006, neither the Debtor nor her counsel had responded to the Trustee's requests. Thereupon, the Trustee moved for authority to examine the Debtor under Rule 2004 of the Federal Rules of Bankruptcy Procedure. An order granting that motion was entered on March 31, 2003 (see Docket No. 10), directing the Debtor to appear at the Trustee's office on April 28, 2003, and to provide the returns (the "Rule 2004 Order"). The Debtor failed to comply with the Rule 2004 Order, and failed to provide the returns.

On May 22, 2006, the Trustee commenced an adversary proceeding, captioned Sicherman v. Parker, Adversary Proceeding No. 06-01422 (the "Adversary Proceeding"), requesting that the Debtor's discharge be revoked and denied due to her failure and refusal to comply with the Rule 2004 Order and to provide the returns.

The next day, on May 23, 2006, the Trustee received a fax from the Debtor's counsel, enclosing a copy of the Returns. The Trustee's pleadings reflect that the returns show that the Debtor was entitled to receive refunds from the United States of America, internal Revenue Service and the Treasurer of the State of Ohio, prorated from the petition date, in the aggregate sum of $4,469.85. Of that sum, the Trustee contends the amount of $4,269.85 is not exempt and is property of the estate pursuant to 11 U.S.C. § 541 of the Bankruptcy Code.

On June 27, 2006, the Trustee filed his motion for an order directing the Debtor to turn over the Refunds (the "Turnover Motion"). In response to the turnover motion, the Debtor filed amended claims of exemption under O.R.C. § 2329.66(A)(11), in addition to an objection to the turnover motion. On August 1, 2006, the Trustee timely objected to the Debtor's amended claims of exemption.

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Herein, the Trustee contends that the EITC, which the Debtor claims as exempt, is nonexempt property of the estate. The Trustee asserts that the refunds, in general, do not qualify as "spousal support, child support, an allowance, or other maintenance as is required under O.R.C. § 2329.33(A)(11)."

The Debtor states that, of the $4,606.00 federal tax refund that she received, $3,167.00 represents the Debtor's EITC portion. The Debtor asserts that the EITC is a federal benefit program for low wage earners with families. The Debtor argues that the program is designed to assist individuals in supporting their families. In addition, the Debtor asserts that the CTC portion of her federal income tax refund, in the amount of $989.00, is a similar federal benefit designed to assist wage earners with their families. The Debtor argues that because of the public policy, the EITC and the CTC are exempt pursuant to Ohio Rev.Code. 2329.66(A)(11), because both credits provide maintenance to the extent reasonably necessary for support.

* * *

The dispositive issue is whether the portions of the Debtor's federal income tax refund, designated as the Earned Income Tax Credit ("EITC" or "EIC") and the Child Tax Credit (CTC), are exempt property pursuant to § 2329.66(A)(11) of the Ohio Revised Code. (Ohio Revised Code Ann. § 2329.66(A)(11)).

* * * *

Section 541 of the Bankruptcy Code provides that, all property in which a debtor has a legal or equitable interest at the commencement of the case is included in the bankruptcy estate. See 11 U.S.C. § 541. A debtor, however, may exempt certain property from the bankruptcy estate pursuant to § 522 of the Bankruptcy Code. Section 522(b) provides:

(b)(1) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title and individual cases filed under section 301 or 303 of this title by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed.

(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.

11 U.S.C. § 522. Ohio has opted out of the federal exemption scheme. O.R.C. § 2329.662. A debtor may amend the list of property claimed exempt at any time prior to the bankruptcy case being closed. See FED. R. BANKR.P. 1009. Specifically, Bankruptcy Rule 1009 provides:

(a) General Right to Amend. A voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. The debtor shall give notice of the amendment to the trustee and to any entity affected thereby.

FED. R. BANKR.P. 1009(a). Section 522(l) states, "[u]nless a party in interest objects, the property claimed as exempt on such list is exempt." 11 U.S.C. 522(l).

It is undisputed that the Debtor timely filed her amended claim of exemption prior to the closing of the case. It is likewise undisputed that the Trustee received notice and filed his objection to the amended claim of exemption timely¹. The burden of proof on an objection to a claim of exemption is upon the objecting party. In this matter, the Trustee who bears that burden by a preponderance of the evidence. See In re Hamo, 233 B.R. 718 (6th Cir. BAP 1999); In re Hoppes, 202 B.R. 595 (Bankr.N.D.Ohio 1996).

Herein, the Debtor claimed an amended exemption in the EITC and the CTC portion of her federal income tax refund pursuant to Ohio Rev.Code § 2329.66(A)(11).

A. EARNED INCOME CREDIT

The purpose of eligibility of the EITC is outlined in the Internal Revenue Code at 26 U.S.C. § 32. This section provides:

(a) Allowance of credit. —

(1) In general. — In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer's earned income for the taxable year as does not exceed the earned income amount. * * * * * *

(c) Definitions and special rules. — For purposes of this section —

(1) Eligible individual. —

(A) In general. — The term "eligible individual" means —

(i) any individual who has a qualifying child for the taxable year, or

(ii) any other individual who does not have a qualifying child for the taxable year, if —

(I) such individual's principal place of abode is in the United States for more than one-half of such taxable year,

(II) such individual (or, if the individual is married, either the individual or the individual's spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and

(III) such individual is not a dependent for whom a deduction is allowable under section 151 to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.

28 U.S.C. § 32. The Supreme Court in Sorenson v. Secretary discussed the Congressional purpose of the EITC:

The earned-income credit was enacted to reduce the disincentive to work caused by the imposition of Social Security taxes on earned income (welfare payments are not similarly taxed), to stimulate the economy by funneling funds to persons likely to spend the money immediately, and to provide relief for low-income families hurt by rising food and energy prices. Each is an undeniably important objective. It is impossible, however, for us to say that these goals outweigh the goals served by the subsequently enacted tax-intercept program-securing child support from absent parents whenever possible and reducing the number of families on welfare.

475 U.S. 851, 864, 106 S.Ct. 1600, 1608-1609, 89 L.Ed.2d 855 (1986). The Debtor contends that, courts have excluded credits, such as the EITC, from the estate as "public assistance benefits". In support, the Debtor cites to Flanery v. Mathison, 289 B.R. 624 (W.D.Ky.2003) (exempt under Kentucky law as being in nature of "public assistance" benefit); In re Longstreet, 246 B.R. 611 (Bankr.S...