Published On: March 15, 2021
Protection of Stimulus Payments from a Bankruptcy Trustee
The following is from the NCLC Consumer Law Implications of the American Recovery Plan Act
Public Law No. 116-260, Consolidated Appropriations Act of 2021, div. FF, tit. 10, § 1001(a) adds a new Bankruptcy Code § 541(b)(11) to the list of exclusions from property of the bankruptcy estate. It provides that “recovery rebates made under section 6428 of the Internal Revenue Code of 1986” are not property of the estate. The stimulus payments under the Consolidated Appropriations Act were authorized under new section 6428A of the Internal Revenue Code.
The ARPA stimulus payments are provided using this language: “Subchapter B of chapter 65 of the Internal Revenue Code of 1986 is amended by inserting after section 6428A the following new section … In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2021 an amount equal to the 2021 rebate amount determined for such taxable year.” See ARPA § 9601(a). The ARPA stimulus payments are therefore authorized under IRC § 6428B. This means that consumers who receive an ARPA stimulus payment may file bankruptcy without having to use a wildcard or other exemption to protect the funds from possible recovery by the bankruptcy trustee.
It is possible that a court may construe section 6428B as a separate statute and therefore not a recovery rebate “under section 6428.” However, this interpretation would render meaningless the enactment of Code § 541(b)(11) because even the stimulus payments under the December 27, 2020 Consolidated Appropriations Act would not be protected—they were authorized under section 6428A, and the earlier stimulus payments under the CARES Act would have already been spent by debtors at the time Code § 541(b)(11) became effective. Such a reading of the statutory provisions would be contrary to Congress’s intent to protect stimulus payments.
MUSINGS BY DIANE:
Normally we expect math and science to have specific answers, but not so much with medicine and law. The answer may appear clear at one time, but then changes as new facts are known or if those with new view points get involved (like the appellate courts).
In the practice of law the answer to most questions starts with “it depends”. After that statement the lawyer goes on to ask for facts that depict that person’s unique situation. That person answers the questions, many times guessing at what the lawyer meant by certain terms or giving the answer they think the lawyer wants to hear. The lawyer then answers the question (based on what may be false “facts”), but adds “different courts may have a different answer and we cannot guess what the final answer will be”.
Moral here – NEVER GUESS AT THE ANSWER FOR ANY QUESTION ASKED BY A DOCTOR OR LAWYER.
Oh good!! So how are you supposed to make an informed decision? That is where the Rubik’s cube (pictured here) comes into play. You solve one side (all the same color), but in solving the other sides the first side is messed up. After many, many tries it is possible to solve all six sides, but meanwhile your life goes on. You have made choices based on one interpretation of the law, only to find out that the interpretation was “wrong” according to a higher court and now all your decisions are wrong. We tolerate (for the most part) this experimentation from our doctors, but assume that lawyers have the ability to predict the future. They do not. But a good lawyer explains this dilemma, so you understand that there is no guarantee in life (other than death and taxes). Be careful when trusting any doctor or lawyer who answers a complicated question with a firm, unqualified answer.
– Diane L. Drain
About the Author: Diane Drain
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
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You and Jay are the best attorneys I have ever had or needed and thank God for the Honorable Robert Gottsfield in recommending you folks – I would have never made it through the entire process without you and Jay and God Bless you both always and stay in touch as well. You folks are the BEST OF THE BEST in Arizona.
“My only regret is that I didn’t find Diane sooner.” K.H.
I can’t say enough good things about Diane. The way she handled my not typical circumstances was amazing. I was very nervous to start the bankruptcy process but Diane just has a very comforting way of explaining the whole process. My only regret is that I didn’t find Diane sooner. If you find yourself in a financial situation that you can’t correct on your own, please Call Diane Drain as soon as possible.
“Filing for bankruptcy can be a stressful life event” R.A.
Filing for bankruptcy can be a stressful life event, and selecting the right attorney can add to this stress. Diane and Jay were a pleasure to work with, and it is obvious that they are passionate about helping people get their life back on track. I would highly recommend them if you need a bankruptcy attorney.
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