Opinion
Case No. 08-30510. Case No. 08-30519. Case No. 08-30659. Case No. 08-30660. Case No. 08-30913.
3-11-2009
IN THE MATTER OF JOHN FREDRICK HUNZIKER MELINDA JANE HUNZIKER, Chapter 7. RYAN KEITH McLAUGHLIN REBECCA SUE McLAUGHLIN, Chapter 7. JEREMY WAYNE GARNER CHANTE MICHELLE GARNER, Chapter 7. NATHANIEL LLOYD COY MELISSA SUEANN COY, Chapter 7. LONNIE DAVID TURNER, JR. BOBBI JO TURNER, Chapter 7. Debtors.
Steven J. Glaser, Esq., and Anita K. Gloyeski, Esq., counsel for debtors, 116 East Berry Street, Suite 1900, Fort Wayne, Indiana 46802; and Rebecca H. Fischer, Trustee, 112 West Jefferson Blvd., Suite 310, South Bend, Indiana 46601.
Before the court are five chapter 7 bankruptcy cases in which the Trustee has filed Motions to Compel, asking the court to order the turnover of the economic stimulus checks ("stimulus checks") sent to the above-captioned debtors by the Internal Revenue Service ("IRS"). The debtors, represented in each case by the same attorneys, have responded with the same objections to the Trustee's Motion. The cases listed in the caption therefore have been consolidated for the purpose of determining the issues raised by the Trustee's Motions seeking turnover of the stimulus checks and the debtors' objections to the Motions.
Jurisdiction
Pursuant to 28 U.S.C. § 157(a) and Northern District of Indiana Local Rule 200.1, the United States District Court for the Northern District of Indiana has referred this case to this court for hearing and determination. After reviewing the record, the court determines that the matter before it is a core proceeding within the meaning of § 157(b)(2)(E) over which the court has jurisdiction pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. This entry shall serve as findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52, made applicable in this proceeding by Federal Rule of Bankruptcy Procedure 7052. Any conclusion of law more properly classified as a factual finding shall be deemed a fact, and any finding of fact more properly classified as a legal conclusion shall be deemed a conclusion of law.
Background
The Economic Stimulus Act of 2008 ("the Act"), which became effective on February 13, 2008, authorized stimulus checks for "eligible individuals." The debtors herein, having filed their bankruptcy petitions after the enactment of the Act, conceded that they were eligible for the stimulus checks and had received them. However, they insist now that their bankruptcy estates are not entitled to the stimulus checks because, under the Act, the term "`eligible individual' means any individual other than — . . . (C) an estate or trust." 26 U.S.C. § 6428(c). The court notes that the stimulus payments were "available to virtually all taxpayers, but also to those others who do not pay taxes." In re Wooldridge, 393 B.R. 721, 733 (Bankr. D. Idaho 2008). There is no commentary, in the legislative history of this Act or in the cases discussing it, concerning the eligibility restriction for estates and trusts. It matters not, however, because the stimulus checks at issue actually were sent to the above-named individuals, as "eligible individuals," and not to their bankruptcy estates. Now that the checks are in the eligible individuals' hands, the Trustee claims them as property of the bankruptcy estates that were created when they voluntarily commenced their chapter 7 cases.
The property of a debtor's bankruptcy estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "A debtor's contingent interest in future income has consistently been found to be property of the bankruptcy estate." In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993). These debtors, who filed their bankruptcy petitions after the Act was in effect, were "eligible individuals" who were entitled to receive a stimulus payment on the date they filed the petitions. See In re Wooldridge, 393 B.R. at 725. The interest that each of the debtors held in the payments they received under the Act thus constitutes property of the estate. See In re Thompson, 396 B.R. 5, 10 (Bankr. N.D. Ind. 2008); In re Smith, 393 B.R. 205, 209 (Bankr. S.D. Ind. 2008).
The debtors characterize the stimulus checks in different ways in order to demonstrate that the payments should not be part of the bankruptcy estate. They contend that the stimulus money is either a credit against 2008 federal taxes or an advance on the 2008 tax refund. Courts considering these interpretations generally have disagreed with the debtors' position. In their view, a stimulus payment constitutes a tax refund for the debtors' 2007, not 2008, taxes. See In re Smith, 393 B.R. at 208-09; In re Alguire, 391 B.R. 252, 254-55 (Bankr. W.D.N.Y. 2008). As the Wooldridge court explained, "it would be nonsensical for the Court to consider payments made under the Act to be advance payments on 2008 tax refunds, when individuals who are not required to even file an income tax return — and are thus not eligible for tax refunds — may receive a stimulus payment under the Act." In re Wooldridge, 393 B.R. at 733 (noting that the IRS does not consider stimulus payments to be refunds paid in advance); see also In re Schwenke, ___ B.R. ___, 2008 WL 4381822 at *5 (Bankr. D. Mont. 2008) (adopting analysis in Wooldridge, finding that stimulus payment is not advance on tax refund). Courts also have found that the stimulus payment is not subject to proration. See In re Wooldridge, 393 B.R. at 732-33; In re Smith, 393 B.R. at 207 n. 6. The debtors' contingent interest in the stimulus payment, fixed on the date of filing their petitions, "was the right to receive the entire stimulus amount." In re Schwinn, ___ B.R. ___, 2009 WL 161622 at *5 (Bankr. D. Kan. 2009). This court agrees that, because each debtor was qualified to receive the entire stimulus allotment as of the date of the petition, the stimulus check in its entirety is property of the estate, without proration.
The debtors also present a public policy argument. They contend that the turnover of the stimulus checks as part of the debtors' bankruptcy estates defeats the purpose of the Economic Stimulus Act, which is to boost the economy by giving disposable income to the lower and middle classes for the sole purpose of spending. This view was soundly rejected in Wooldridge, which concluded that the stimulus payments were not in the nature of public assistance. See In re Wooldridge, 393 B.R. at 730-32; see also In re Schwenke, 2008 WL 4381822 at *5. As Judge Klingeberger explained in In re Thompson, "the apparent primary purpose of the Act was to infuse additional dollars into a moribund economy, and the identity of the ultimate spender of an infusion — be it the debtor or Trustee or creditors paid by the Trustee — doesn't alter the economic `multiplier' effect of the stimulus to the economy." In re Thompson, 396 B.R. at 11. This court agrees; the focus is on which interests of the debtor are property of the estate at the time the petition is filed, and not on the intentions of Congress under the Economic Stimulus Act. Because the debtors have a legal or equitable interest in those stimulus checks, and because the checks do not fall into any of the exclusions listed in § 541, this court finds that the stimulus checks are property of the debtors' bankruptcy estates and are subject to turnover to the chapter 7 Trustee.
The court determines, therefore, that the stimulus checks are property of the bankruptcy estates of the debtors. The Trustee is entitled to recover and to administer the full amount of the stimulus checks for the benefit of the debtors' creditors. The Trustee's Motions to Compel the turnover of the stimulus checks are granted.
SO ORDERED. --------------- Notes: The court notes, however, that debtors who filed their bankruptcy petitions before the Act was passed had no entitlement to the stimulus checks when their cases commenced, and therefore the checks were not included in the property of their estates. See In re Bennett, 395 B.R. 781 (Bankr. M.D. Fla. 2008); In re Andrews, 386 B.R. 871 (Bankr. D. Utah 2008).