Poverty, Fresh Starts, and the Social Safety Net

For decades low-income families have relied on the filing of individual income tax returns to claim critical social welfare benefits in the form of refundable tax credits, most notably the Earned Income Tax Credit and the Child Tax Credit. But what happens to those families when the social safety net is not enough to meet their financial obligations, and they must seek a fresh start by filing for bankruptcy?

This Article, at the intersection of tax law, bankruptcy law, and the social safety net, examines the ways in which state bankruptcy laws treat refundable tax credits when an individual debtor files for bankruptcy. There is no federal bankruptcy exemption available to protect a debtor’s entitlement to refundable tax credits; the split over whether states provide such an exemption or not results in inconsistency across the country depending on where a debtor resides.

State legislation and case law from U.S. bankruptcy courts provide a critical lens through which to view the tax-based social safety net, highlighting the evolving way in which lawmakers and judges have come to view refundable tax credits. This Article draws upon these perspectives to consider legislative models that might provide more robust protection for debtors who are entitled to these refundable credits, enabling them to better pursue a fresh start.