473 B.R. 392
Bankr. D. Kan.2012Background
- Debtors Dustin and Brandy Westby filed a Chapter 7 petition on June 22, 2011; their Schedule C claimed exemption for Earned Income Credit (EIC) with unknown value.
- Debtors received federal refund of $6,702 and federal EIC of $5,751 around March 5, 2012; state refund $1,490 and state EIC $1,035.
- Kansas enacted Senate Bill No. 12 on April 14, 2011 allowing a bankruptcy-only exemption for the EIC up to the federal maximum per tax year.
- Trustee objected to the EIC exemption on constitutional grounds (Uniformity and Supremacy Clauses) and related statutory interpretation.
- Court held Senate Bill No. 12 does not violate Uniformity or Supremacy Clauses, and Trustee’s objections are overruled; exemption applied to the Westbys’ refunds.
- Case remains pending as a core proceeding with constitutionality challenges held in abeyance pending appeal status.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Uniformity Clause validity | Trustee claims Uniformity violation. | Westbys argue state exemption allowed by 522(b) compatible. | No Uniformity violation. |
| Supremacy Clause preemption | Trustee asserts implied/express preemption of SB 12 by Code. | Exemption statute is state law concurrent with federal scheme; no conflict. | No Supremacy Clause violation. |
| Standing and ripeness | Trustee has standing to object; dispute ripe due to fixed exemption amounts. | Debtors and state interest justify standing; ripeness satisfied by actual refunds. | Trustee has standing; case ripe for review. |
| Proper scope and effect of exemption under 522(b) and IRC | Exemption applies to right to receive EIC, up to max per year; may affect refunds. | Exemption aligns with 11 U.S.C. § 522(b) and IRC structure; no conflict with 6402. | Exemption properly applied; no IRC conflict. |
Key Cases Cited
- Sturges v. Crowninshield, 17 U.S. 122 (U.S. 1819) (uniformity power discussion; states may enact bankrupt laws before Congress acts)
- Hanover Nat’l Bank v. Moyses, 186 U.S. 181 (U.S. 1902) (geographic uniformity; exemptions may reflect state laws)
- Int'l Shoe Co. v. Pinkus, 278 U.S. 261 (U.S. 1929) (preemption considerations in bankruptcy context)
- Butner v. United States, 310 U.S. ittu (U.S. 1974) (state law governs property rights in bankruptcy absent conflict)
- Owen v. Owen, 500 U.S. 305 (U.S. 1991) (state exemptions; opt-out framework acknowledged)