Currently, in the Middle District of Florida, most, if not all of the Bankruptcy Judges hold that tax refunds are not protected from the Bankruptcy Trustee in Bankruptcy Proceedings. The Bankruptcy Trustees and Judges in making their argument, will likely cite a Bankruptcy Decision by Alexander Paskay where he held that Tax Refunds are not Exempt or protected from the Bankruptcy Trustee, but that the portion of a Tax Refund that represents the Earned Income Credit, should be Exempt.
In my opinion, Paskay’s holding in In Re Sanderson completely ignores what the Law in the State of Florida states regarding tax refunds.
Florida Statute Section 222.25(3) states:
The following property is exempt from attachment, garnishment, or other legal process:
A DEBTOR’S INTEREST IN A REFUND OR A CREDIT RECEIVED OR TO BE RECEIVED, or the traceable deposits in a financial institution of a debtor’s interest in a refund or credit, pursuant to s. 32 of the Internal Revenue Code of 1986 as amended….
The Florida Statute contains two parts, and to properly interpret the construction of the Statute, as any student learns in law school, the reader needs to separate those parts or portions of the Florida Statute. The Statute, properly interpreted, states that the property that is exempt from attachment, garnishment or legal process is:
A DEBTOR’S INTEREST IN A REFUND OR A CREDIT RECEIVED
A DEBTOR’S INTEREST IN A REFUND OR A CREDIT TO BE RECEIVED
THE TRACEABLE DEPOSITS IN A FINANCIAL INSTITUTION OR A DEBTOR’S INTEREST IN A REFUND OR CREDIT, PURSUANT TO S. 32 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
The Statute plainly states that a debtor’s interest in a refund or credit is exempt under the Laws of the State of Florida. Persons filing Bankruptcy in the State of Florida are generally required to use the State Exemptions of Florida, and Bankruptcy Judges are to respect and follow the State Exemptions of Florida in their analysis of cases in their purview.
Currently, if you file Bankruptcy in the Middle District, the Bankruptcy Trustees will attempt to take your tax refund, and in a Chapter 13 Bankruptcy, they may attempt to take such refund every year that you are in the Chapter 13 Bankruptcy.
But such actions are contrary to the Laws of the State of Florida.