In re King

Margaret Naomi King (debtor) had her 2012 federal income-tax return filed by H&R Block Tax Group. The tax return claimed a refund of $8,548, which included an earned-income credit of $5,891. H&R Block created a refund-anticipation-check bank account for King’s benefit for the purpose of depositing King’s anticipated tax refund. After the refund was deposited in the account, H&R Block withdrew the amount of the tax-preparation fee that King owed and deposited the remaining $8,196.55 into King’s personal checking account. On February 13, 2013, $3,138.63 was frozen from King’s checking account as the result of a garnishment by one of King’s creditors. On March 22, 2013, King filed a voluntary petition for chapter 7 bankruptcy. After King filed the bankruptcy petition, King’s creditor requested that the frozen funds be released, and King took possession of the money. King claimed that the $3,138.63 was exempt from seizure under Indiana’s bankruptcy law, which exempts a debtor’s interest in a “refund or credit received or to be received” under the Internal Revenue Code’s earned-income-credit provision. King asserted that the $3,138.63 was the proceeds of the earned-income-credit portion of her tax refund. Kenneth Manning, the trustee of King’s bankruptcy estate, filed an objection to King’s claimed exemption. Manning asserted that the $3,138.63 was not from the earned-income credit and thus was the property of the bankruptcy estate. Manning claimed that when King’s tax refund was deposited into the bank account controlled by H&R Block, the funds stopped being a tax refund and instead became refund-anticipation-check funds that were paid to King by H&R Block.