Marshall v. Blake

On direct appeal, Seventh Circuit upholds Bankruptcy Judge Thorne by allowing chapter 13 debtors to retain anticipated refunds from earned income tax credits.

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Case Type:
Case Status:
17-2809 (7th Circuit, Mar 22,2018) Published
1. The Circuit Court had jurisdiction over the "direct appeal" because (i) the Bankruptcy Court certified that the order "involved" a question of law that warranted a direct appeal and the Circuit Court agreed and (ii) the Trustee's failure to file a F.R.A.P 5 petition was harmless. 2. Tax refund derived from tax credits is "income" for purposes of Chapter 13 of the Bankruptcy Code; debtors are entitled to prorate tax refunds for purposes of 1325(b) and to offset reasonably necessary expenses against them.
Procedural context:
Direct appeal from the United States Bankruptcy Court for the Northern District of Illinois, after remand from the District Court for the Northern District of Illinois, in accordance with Fed. R. Bankr. P. 8008.
Below-median income chapter 13 debtor proposed a plan pursuant to which she sought to retain her annual earned income tax credit and a portion of her tax overwithholdings. The Trustee objected and argued that the debtor was required to turn over entire tax refund for use as additional plan payments. The bankruptcy court confirmed the plan and held that although income tax credits constitute income and must be considered when calculating "projected disposable income," the debtor was entitled to retain the refund is she prorated it as monthly income and offset it against necessary expenses throughout the year.
Flaum, Bauer, and Manion

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