- Category: Judge Karlin
- Published on 14 December 2011
- Written by Judge Karlin
SIGNED this 13th day of December, 2011.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Bobbi Karen Studstill, Case No. 11-40582
Memorandum Opinion and Order Granting the Trustee’s Motion for
Turnover and Sustaining the Trustee’s Objection to Amended Schedule C
Bobbi Studstill seeks to exempt the portion of a tax refund that she held as cash
at the time she filed her bankruptcy petition, claiming it exempt under Kansas Senate
Bill No. 12, which was passed by the Kansas Legislature in 2011. That legislation
provides that a Kansas debtor in bankruptcy is entitled to exempt from the bankruptcy
estate the right to receive the federal and state earned income tax credit for one tax
year. Because the exemption under Kansas Senate Bill No. 12 did not take effect until
April 14, 2011, however, it does not apply to the Debtor because she received the refund
and converted it to cash prior to that effective date. For that reason, the Court grants
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the Trustee’s Motion for Turnover of Funds and/or Property1 and sustains the Trustee’s
Objection to Amended Schedule C.2
The Debtor and the Trustee have stipulated to the pertinent facts, which follow.
In February 2011, the Debtor received a tax refund of $1829.74 from her 2010 federal
return. On April 22, 2011, she filed a pro se voluntary Chapter 7 petition. She did not
list the 2010 income tax refund on Schedule B or Schedule C, but did list $400 cash on
Debtor’s bank statements reflect she did have $406.02 in her bank account on the
petition date. Debtor admits, however, that she also held approximately $1300 in cash
from that tax refund on the petition date. Of that amount, she maintains that $848 was
actually unavailable to her because she was preparing to pay that amount to reserve
a rental truck to relocate her home from Kansas to Texas. Debtor later amended her
Schedule C to exempt her 2010 tax refund of $1829.74 pursuant to “Kansas Senate Bill
Kansas Senate Bill No. 12 is a reference to a newly enacted exemption available
for Kansas debtors in bankruptcy.3 Senate Bill No 12 states:
Section 1. An individual debtor under the federal
bankruptcy reform act of 1978 (11 U.S.C. §101 et seq.), mayexempt the debtor’s right to receive tax credits allowedpursuant to section 32 of the federal internal revenue code of
1 Doc. 16.
2 Doc. 40.
3 S. 12, 2011 Reg. Sess. (Kan. 2011), to be codified at K.S.A. 60-2315.
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1986, as amended, and K.S.A. 2010 Supp. 79-32,205, andamendments thereto. An exemption pursuant to this sectionshall not exceed the maximum credit allowed to the debtor
under section 32 of the federal internal revenue code of 1986,
as amended, for one tax year. Nothing in this section shall beconstrued to limit the right of offset, attachment or otherprocess with respect to the earned income tax credit for thepayment of child support or spousal maintenance.
Sec. 2. This act shall take effect and be in force from
and after its publication in the Kansas register.
The statute became effective on April 14, 2011, with its publication in the Kansas
Register.4 Under this legislation, a Kansas debtor in bankruptcy—as of April 14, 2011—
is entitled to exempt from the bankruptcy estate the right to receive the tax credits
allowed by the federal and state earned income tax credit. The exemption is available
“for one tax year.”
II. Conclusions of Law
As a preliminary matter, the Court has jurisdiction to decide this matter,5 and
it is a core proceeding.6
A. Burden of Proof Governing Turnover and Exemptions
In a motion for turnover, “[t]he trustee has the burden to prove that the property
sought is in fact property of the bankruptcy estate and that the debtor was in
4 See Vol. 30, No. 15 Kan. Reg. page 437 (April 14, 2011) (publication).
5 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and 11 U.S.C. § 1334(a) and(b), and by operation of a Standing Order dated August 1, 1984, effective July 10, 1984,
referenced in D. Kan. Rule 83.8.5, wherein the District Court for the District of Kansas referredall cases and proceedings in, under, or related to Title 11 to the District’s bankruptcy judges.
6 28 U.S.C. § 157(b)(2)(E).
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possession, custody or control of the property sought.”7 The Trustee must carry this
burden by a preponderance of the evidence.8 The property sought herein is cash, and the
parties have stipulated that cash is property of the estate under 11 U.S.C. § 541(a).9
Subsection 521(a)(4) requires debtors to surrender any property of the estate to the
A debtor’s exemption rights are determined as of the date of filing the petition
for bankruptcy.10 Because Kansas has opted out of the federal exemption scheme,
Kansas debtors are limited to state law exemptions.11 The exemptions in Kansas are set
out in sections 60-2301 to 60-2315 of the Kansas Statutes. “In determining whether a
debtor is entitled to claim an exemption, the exemption laws are to be construed
liberally in favor of exemption.”12
7 In re Spencer, 362 B.R. 489, 490 (Bankr. D. Kan. 2006); see also Fed. R. Bankr. P.
4003(c) (stating that the party objecting to a claim of exemption “has the burden of proving thatthe exemptions are not properly claimed”).
8 5 Collier on Bankruptcy ¶542.02, at 542-7 (Alan N. Resnick & Henry J. Sommer eds.,
9 All future statutory references are to the Bankruptcy Code as amended by theBankruptcy Abuse Prevention and Consumer Protection Act of 2005, 11 U.S.C. §§ 101 - 1532(2005), unless otherwise specifically noted.
10 11 U.S.C. § 522(b); Lampe v. Iola Bank & Trust (In re Lampe), 278 B.R. 205, 210(10th Cir. BAP 2002) (holding that the debtor’s right to exemption is determined as of datepetition is filed).
11 K.S.A. 60-2312(a).
12 In re Hall, 395 B.R. 722, 729 (Bankr. D. Kan. 2008).
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Kansas Senate Bill No 12 Does Not Provide An Exemption for a
2010 Tax Refund Received Before the Effective Date of the Statute
The parties agree the issue is whether the cash demanded by the Trustee
retained its character as a tax refund, to which the earned income credit exemption
would potentially apply, when the refund had been converted to cash approximately two
months prior to the filing of bankruptcy. The matter can be resolved on a more narrow
basis, however, by looking to the specific language of the statute.13 Senate Bill No. 12
exempts the “right to receive tax credits” and states that the exemption has no effect
until it is published in the Kansas Register.
The Debtor received her tax refund in early February 2011. The cited exemption
did not become effective until April 14, 2011. Therefore, there was no exemption
available under Senate Bill No. 12 at the time the Debtor received her tax refund.
Regardless of the characterization of the $1300 as cash or as refund, there was simply
no state exemption available to her when she received the money. Therefore, the
conversion of that tax refund to cash is also not exempt, because the tax refund was not
exempt in the first place. At the date of filing her petition, she held cash—converted
from a non-exempt tax refund—and there was and is no exemption available for cash
under the Kansas statutes.14 “While a court should bear in mind that exemption
statutes are construed liberally so as to affect their beneficent purposes, a court
13 See Hodes v. Hood (In re Hodes), 308 B.R. 61,68–9 (10th Cir. BAP 2004) (requiringthat state exemption laws be interpreted under the state’s rules of statutory construction andconcluding that, in Kansas, when the “statute is plain and unambiguous the court must giveeffect to the intention of the legislature as expressed”).
14 See In re Frierson, 15 B.R. 157, 159 (Bankr. D. Kan. 1981) (“The Kansas exemptionstatute does not exempt money or bank accounts per se.”); 12 Collier on Bankruptcy KS-1 to
KS-18 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (listing Kansas exemptions).
Case 11-40582 Doc# 60 Filed 12/13/11 Page 5 of 8
interpreting the statute is still limited by what the terms of the statute can fairly be
said to embrace.”15
This Court is charged with predicting how the Kansas Supreme Court would rule
on these facts when it has not addressed the issue dealing with exemptions under state
law.16 Here, the statutory exemption claimed by Ms. Studstill states that a debtor in
bankruptcy “may exempt the debtor’s right to receive tax credits” after April 14, 2011.
The structure of the statute does not indicate that the Kansas legislature intended to
reach back and exempt tax refunds received prior to the statute’s enactment. In Kansas,
unless a statute is express that it will have a retroactive effect, the statute is presumed
to operate only prospectively.17 Property must first be entitled to an “exempt”
characterization before the court need assess whether the property can be converted
and retain its exempt status.18
15 In re Sauer, 403 B.R. 722, 727 (Bankr. D. Kan. 2009).
16 In re Kester, 339 B.R. 749, 754 (10th Cir. BAP 2006).
17 Johnson v. Warren, 192 Kan. 310, 314, 387 P.2d 213 (1963); In re Africo Explorations,
Inc., 146 B.R. 280, 287 (Bankr. D. Kan. 1992).
18 See, e.g., In re Tessendorf, 449 B.R. 793 (Bankr. D. Kan. 2011) (first determining thescope of property included within the exemption, and then following with conclusion thatconversion of that exempt property to a certificate of deposit retained the original exemptionof the money; analyzing exemption for proceeds of an insurance policy); In re Hall, 394 B.R.
582, 593 (Bankr. D. Kan. 2008) (same; analyzing exemption for workers compensation funds);
In re Moore, 214 B.R. 628 (Bankr. D. Kan. 1997) (same; analyzing retirement funds and socialsecurity retirement benefits); Armstrong-Turner Millinery Co. v. Round, 106 Kan. 146, 186 P.
979 (1920) (concluding that the proceeds of an insurance policy covering exempt personalproperty are exempt to the same extent the property was exempt).
Case 11-40582 Doc# 60 Filed 12/13/11 Page 6 of 8
The Trustee Has Shown that the $1300 Held by Debtor Studstill on
the Date of Filing Bankruptcy is Property of the Bankruptcy
The parties have stipulated that the Debtor was holding cash when she filed her
bankruptcy petition and that her bank statements from a Commerce Bank account
reflect a balance in the account of $406.02 on the petition date. The Trustee contends,
however, that at the meeting of creditors on May 31, 2011, Ms. Studstill testified that
she had $1300 in cash at the time of filing,19 and she confirmed that admission during
a status conference on this matter in September 2011.20 She counters that $848 of the
$1300 was “unavailable as cash,” and that she considered it “spent” because she had
reserved a rental truck on April 6, 201021 (although there is no assertion that the money
had been transferred to the rental company).
The Court concludes that the Trustee has carried her burden of proving that Ms.
Studstill held $1300 cash on the date of filing bankruptcy and that it must be turned
over to the bankruptcy estate. The fact that Ms. Studstill intended, post-filing, to use
$848 of that cash to rent a truck for a future move does not mean that she was not
19 Doc. 16 (requesting turnover of the “1,300.00 left from [Ms. Studstill’s] 2010 taxrefunds as testified at the May 31, 2011 hearing”); Doc. 40 (“The debtor further testified thatas of the date of filing, she had $1,300.00 in cash proceeds remaining from her 2010 income taxrefunds.”).
20 Doc. 52 at p.2 (“At a hearing via teleconference on September 29, 2011, the Debtoragreed she held approximately $1,300.00 ‘actual cash’ on the Petition Date from the taxrefund.”).
21 Doc. 52 at 2 (“Debtor maintains that at the time of preparing and filing bankruptcythe amount of $848 was considered spent and absolutely unavailable as cash . . upon reserving. . . a rental truck on April 6, 2010.”). From the context of this discussion in her brief, the Courtassumes it was actually “2011,” not “2010.”
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holding the $1300 as cash. As stated above, cash is property of the bankruptcy estate,22
and, therefore, it must be turned over to the Trustee.23
It is, therefore, by the Court Ordered that the Trustee’s Motion for Turnover
of $1,300 is granted, and the Trustee’s Objection to Amended Schedule C is sustained.
# # #
22 11 U.S.C. § 541(a).
23 11 U.S.C. § 521(a)(4).
Case 11-40582 Doc# 60 Filed 12/13/11 Page 8 of 8
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