Available at: https://ssrn.com/abstract=4934050
Abstract:
The earned income tax credit (EITC) is currently the largest means-tested antipoverty program in the United States that assists low-income working families surviving along the edges of poverty. A central component of the national welfare system, the EITC has lifted millions of families with children out of poverty and has produced myriad benefits for their everyday lives. But most of the poor and near-poor endure in the low-wage labor market and often lead turbulent financial lives plagued by precarious employment along with deleterious material and psychological constraints in budgeting for daily expenses. For the segment of these families also burdened by unwieldy debts, bankruptcy laws offer a fresh financial start in life, in part by allowing debtors to exempt certain property from the reach of creditors.
However, in most jurisdictions EITC refunds are not exemptible in bankruptcy and can be seized by trustees to both enrich themselves and to distribute to creditors, while many middle-class assets are shielded entirely. Adopting a critical theory framework, this Article maintains that capturing EITC refunds from low-income working families who resort to filing bankruptcy is inequitable and perpetuates class inequality. Low-income working families are doubly exploited in our harsh economy, first by the low-wage labor market and second by the bankruptcy system. I argue for the implementation of statutory changes to fully protect EITC refunds in bankruptcy as a matter of fundamental equity.
Commentary:
Paired with the recent Bellido opinion from the M.D.N.C. bankruptcy court (blog post forthcoming), the examination in this article of the lack of protection for the EITC is a real indictment of how bankruptcy courts universally assert that they are giving "a liberal presumption in favor of claimed exemptions" but nonetheless repeatedly allow Trustees to seize these funds from the poorest of debtors. The author is also unfortunately correct that, despite various governmental agencies, from the Department of Justice or the U.S. Trustee Program to more locally the Bankruptcy Administrators (all of whom could direct Trustees, as they did with COVID relief benefits, not to administer EITC funds), mouthing concerns for access to justice in bankruptcy, the only real solution will be for Congress (or state legislatures) to act. This could be done by simply excluding the EITC from the bankruptcy estate like 401k plans, providing an broad exemption in all states (regardless of having those opted-out) as is done for Social Security, an/or excluding it from the definition of Disposable Monthly Income.
With proper attribution, please share this post.
Blog comments