Minnesota Property Tax Refunds Not Exempt in Bankruptcy, Appeals Cou...

Reversing the Minnesota bankruptcy court, an intermediate federal appeals court ruled that a property tax refund owed to a bankrupt homeowner cannot be claimed exempt.  Manty v. Johnson (In re Johnson), No. 13-6050 (8th Cir. BAP April 22, 2014).

The appeals court said that the bankruptcy court was mistaken when it held that a Minnesota property tax refund was protected by Minnesota Statutes Section 550.37, subd. 14.  This statute provides an exemption for “government assistance based on need.”

The debtor in this chapter 7 case was an 88 year old widow who owned a home valued at $200,000 with about $150,000 in equity.  Her only regular source of income was Social Security, with occasional income from renting out a room in her home.

At the time the case was filed, the debtor was entitled to a property tax refund of $1,947.  She claimed the property tax refund as exempt pursuant to section 550.37, subd. 14, reasoning that it was government assistance.  After the bankruptcy court sustained her claim of exemption, the chapter 7 trustee appealed to the Bankruptcy Appellate Panel.

The appeals court noted that in 2012, under Minnesota’s property tax refund system, persons earning as much $103,729 were eligible for at least some property tax relief.  Such persons could not be said to meet the dictionary definition of being persons in need of government assistance.

Property tax refunds also differed from other programs of government assistance, such as the federal Earned Income Credit, in that the property tax refund amounted to an overpayment of tax.  However, persons were eligible for the Earned Income Credit even if they had paid no tax.

The appeals court likened the Minnesota exemption for public assistance to a Missouri exemption which the appeals court had addressed in the case of Hardy v. Fink (In re Hardy), 503 B.R. 722 (8th Cir. BAP 2013).  In Hardy, the appeals court had ruled that Missouri’s exemption for public assistance did not protect a federal child income tax credit which was available to persons earning up to $110,000.

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