KSB

Judge Karlin

11-41054 Cook (Doc. # 62)

In Re Cook, 11-41054 (Bankr. D. Kan. May 3, 2012) Doc. # 62

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SO ORDERED.
SIGNED this 2nd day of May, 2012.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
Darren B. Cook Case No. 11-41054
Susan E. Cook, Chapter 7

Debtors.

In re:
Charles Andrew Railsback Case No. 11-41546
Jennifer Diane Railsback, Chapter 7

Debtors.

In re:
Jeremy Allen Roberts Case No. 11-41943
Sarah Jane Roberts, Chapter 7

Debtors.

In re:
Leeandrea Danielle Wolford, Case No. 11-42000
Chapter 7
Debtor.

Case 11-41054 Doc# 62 Filed 05/02/12 Page 1 of 4


In re:
Eric Eugene Wright, Case No. 11-42052
Chapter 7
Debtor.

In re:
Daryl Martin Downs Case No. 11-42086
Kerry Lynn Downs, Chapter 7

Debtors.

Order Overruling Trustee’s Motion for Partial Reconsideration

This matter is before the Court on Trustee Robert L. Baer’s motion for partial

reconsideration, filed in each of the above-named cases. The Trustee seeks

reconsideration of the Court’s April 4, 2012 Order regarding the release of the above-

named Debtors’ tax refunds. The Court’s Order stated, in pertinent part:

Additional objections to exemption challenging the
constitutionality of the [Earned Income Tax Credit (“EIC”)]
exemption are held under advisement, pending resolution ofany appeal in [In re Westby, Case No. 11-40986]. . . .

The Court previously ordered that the tax refunds inthese cases be held in trust, pending the Court’s decision onthe constitutionality of the EIC exemption. The fundspreviously held in trust pursuant to the Court’s prior ordersshall now be released to the Debtors, both in this case and
in all cases in which a Trustee has filed an objection to theexemption based on the constitutionality of the EIC.

The Trustee asks for reconsideration of the Court’s Order that the EIC refunds held

in trust should be released to the Debtors.

The Trustee’s motion states two bases for reconsideration. First, the Trustee

argues that, because there has been no final order on the objections to exemption in his

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cases (because the objections to exemption were taken under advisement pending
appeal in Westby), there is no basis to permit “turnover of estate property.” However,
the requirement to place the refunds in trust in the first instance was a Court-created
requirement stemming from a case management order. The Court is free to change its
internal procedural handling of these cases at any time.1

Second, the Trustee argues that if the appeal in Westby is successful, then the
debtors would be harmed by “adversary proceedings in which their discharge could be
lost.” Basically, the Trustee argues that if the Court’s opinion is reversed and the
Trustee’s objections to exemption of the EIC are ultimately sustained, and if the
Debtors then did not repay those funds to the estate after a demand, then each of these
Debtors would lose their discharge for failure to pay the EIC amount to the Trustee.
The Trustee is, therefore, asking that the refunds remain in trust.

If a Debtor spends their tax refund money, and the Trustee’s objections to
exemption are ultimately sustained, then the Trustee would simply need to seek
turnover. Only if the Debtors had funds and refused to turn them over would the Court
be likely to revoke a discharge.2 The Trustees in this division regularly take payments
over time when a party owes money to the estate and does not have ready cash on

1 See, e.g., Clark v. State Farm Mut. Auto. Ins. Co., 590 F.3d 1134, 1140 (10th Cir.
2009) (stating that trial courts have “broad discretion to manage their dockets”).

2 See, e.g., 11 U.S.C. § 727(d) (stating that the “court shall revoke a discharge” whencertain delineated situations are present, including if a debtor “knowingly and fraudulentlyfailed . . . to deliver or surrender” property of the estate to a trustee). As a result, it wouldabsolutely not be certain that a discharge would be revoked where a trustee seeks turnoverand a debtor is financially unable to immediately come up with funds for payment.

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hand. The Court cannot imagine why or how these cases would be different.

Essentially, the Trustee is requesting a stay of the Court’s order in Westby,
alleging that any harm to Debtors from withholding money from them—money this
Court has now held is theirs to keep—is outweighed by the “potential loss of discharge
should they be unable to immediately remit the EIC” if an appeal in Westby changes
the current posture of these cases.3 To the contrary, it is this Court’s belief that
Debtors are more likely to be harmed by a stay of its Order, and the Trustee is not
likely to suffer any irreparable injury. The Debtors, by the very nature of being eligible
for the EIC, are low-income wage earners, and experience over time has shown this
judge that low-income debtors rely on this money for immediate needs.4

It is, therefore, by the Court ordered that the Trustee’s motion for partial
reconsideration is overruled. The Clerk shall docket this order in each of the above-
named cases, and transmit a copy of the order to the address of record for the Attorney
General.

# # #

3 The standards for a stay pending appeal are: “(1) the likelihood that the party seeking
the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will
suffer irreparable injury unless the stay is granted; (3) whether granting the stay will result in
substantial harm to the other parties to the appeal; and (4) the effect of granting the stay upon the
public interest.” Lang v. Lang (In re Lang), 305 B.R. 905, 911 (10th Cir. BAP 2004). So in these
cases, the Court finds that 1) it is not likely the trustees will prevail on the merits; 2) that it is not
likely that the trustees will suffer irreparable injury, or at least 3) that they will sustain less harm
that the Debtors in each appeal, and 4) that it is not in the public interest to grant a stay, as that
interest has been established by the Kansas legislature when it enacted the EIC exemption.

4 See Sorenson v. Sec’y of Treasury, 475 U.S. 851, 864 (1986).

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