Journal of Consumer & Commercial Law
DEBTOR’S STATE AND FEDERAL TAX REFUNDS ARE
EXEMPT FROM THE BANKRUPTCY ESTATE
In re Charles Benn, Jr. 340 B.R. 905 (2006).
FACTS: Mr. Charles Benn, Jr. fi led a petition under Chapter 7 on
December 31, 2003. In his third amended schedules, he claimed
an exemption in all possible 2003 tax refunds under Mo.Rev.Stat.
§ 513.427, 26 U.S.C. § 6402, and 31 U.S.C. §3727. Th e trustee
fi led an objection to the claimed exemption. Prior to an order
being entered concerning the claim of exemption, the debtor
received a refund of the 2003 federal income tax withholding in
the amount of $1502. He also received a refund of the 2003 state
income tax withholding in the amount of $36. After the debtor
received the refund checks, the Trustee fi led a motion for turnover
of the refunds to which the debtor objected. Th e Eastern District
of Missouri overruled debtors’ exemption claims and ordered
turnover of refunds, and debtors appealed.
HOLDING: Reversed and Remanded
REASONING: Th e Court reasoned that, on the date that Chapter
7 petitions were fi led, prior to the end of tax year to which refunds
related, debtors had only contingent right to refunds. Th is interest
was not subject to attachment under Missouri law, and could thus
be claimed as exempt by debtors.
In making its decision, the court looked to a 1970 Missouri
Court of Appeal’s case, which cited an 1876 Missouri Supreme
Court case, for the proposition that “‘[t]he debt for which an
attachment may issue must possess an actual character and not
be merely possible, and dependent upon a contingency which
may never happen.’ ” State Gov’t Employees Ins. Co. v. Lasky, 454
S.W.2d 942, 950 (Mo.App.1970), Th e court in Lasky noted that
“[b]y an unbroken line of decision since that time our Courts
have held that to be the subject of a garnishment the debt must be
certain and not contingent.” Lasky, 454 S.W.2d at 950.
Th e court in the instant case reasoned that the tax returns