            United States Bankruptcy Appellate Panel
                          For the Eighth Circuit
                      ___________________________

                              No. 14-6023
                      ___________________________

In re: Paul Roma Dmitruk, also known as Pavel Roma Dmitruk, As surety for DPR
                                  Auto Repair

                             lllllllllllllllllllllDebtor

                           ------------------------------

                               Julia A. Christians

                      lllllllllllllllllllllTrustee - Appellant

                                         v.

                              Paul Roma Dmitruk

                       lllllllllllllllllllllDebtor - Appellee
                                    ____________

                 Appeal from United States Bankruptcy Court
                  for the District of Minnesota - Minneapolis
                                 ____________

                        Submitted: September 3, 2014
                         Filed: September 15, 2014
                               ____________
Before FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy
Judges.

                                  ____________

FEDERMAN, Chief Judge



      The Chapter 7 Trustee appeals from the Order of the Bankruptcy Court1
overruling the Trustee’s objection to the Debtor’s claimed exemption in the portion
of his state income tax refund which came from the Minnesota Education Credit,
as “government assistance based on need” under § 550.37, subd. 14 of the
Minnesota Statutes. For the reasons that follow, we AFFIRM.

                          FACTUAL BACKGROUND

      Debtor Paul R. Dmitruk filed a Chapter 7 bankruptcy case on April 26,
2013. At the time of filing, the Debtor, his wife, and three minor children lived on
his $1,250 monthly income and $900 monthly food stamp allowance. He chose to
claim Minnesota exemptions2 and, in an amended Schedule B, he claimed
exemptions in several separate components of his federal and state income tax
refunds under § 550.37, subd. 14 of the Minnesota Statutes, as “government
assistance based on need.”    The Chapter 7 Trustee objected to the exemptions,
some of which the Bankruptcy Court allowed, and some of which the Court


      1
        The Honorable Kathleen H. Sanberg, United States Bankruptcy Judge for
the District of Minnesota.
      2
        Bankruptcy debtors in Minnesota may choose either the federal exemptions
or the exemptions provided under Minnesota and other federal law. Manty v.
Johnson (In re Johnson), 509 B.R. 213, 215 (B.A.P. 8th Cir. 2014) (citing Martin
v. Bucher (In re Martin), 297 B.R. 750, 751-52 (B.A.P. 8th Cir. 2003)).
                                         2
denied. This appeal involves only one component of the claimed exemptions: the
portion of the Debtor’s 2013 state income tax refund for the Minnesota K-12
Education Credit in the amount of $1,357. The Bankruptcy Court overruled the
Trustee’s objection and allowed the Debtor to claim the exemption under § 550.37,
subd. 14. The Chapter 7 Trustee appeals.

                           STANDARD OF REVIEW

      We review the Bankruptcy Court’s findings of fact for clear error and
conclusions of law de novo.3 The Bankruptcy Court’s statutory interpretation is a
question of law that is subject to de novo review.4 Likewise, the allowance or
disallowance of an exemption is subject to de novo review.5

                                  DISCUSSION

      The Debtor claimed his Minnesota Education Credit exempt under §
550.37, subd. 14 of the Minnesota Statutes. That statute provides, in relevant part:

      Subd. 14. Public assistance. All government assistance based on
      need, and the earnings or salary of a person who is a recipient of
      government assistance based on need, shall be exempt from all claims
      of creditors including any contractual setoff or security interest
      asserted by a financial institution. For the purposes of this chapter,
      government assistance based on need includes but is not limited to
      Minnesota family investment program, general assistance medical

      3
        Id. at 214(citing Addison v. Seaver (In re Seaver), 540 F.3d 805, 809 (8th
Cir. 2008)).
      4
        Id. at 214-15 (citing Graven v. Fink (In re Graven), 936 F.2d 378, 384-85
(8th Cir. 1991)).
      5
       Id. at 215 (citing Drenttel v. Jensen-Carter (In re Drenttel), 309 B.R. 320,
322 (B.A.P. 8th Cir. 2004)).

                                         3
      care, Supplemental Security Income, medical assistance,
      MinnesotaCare, payment of Medicare part B premiums or receipt of
      part D extra help, MFIP diversionary work program, work
      participation cash benefit, Minnesota supplemental assistance,
      emergency Minnesota supplemental assistance, general assistance,
      emergency general assistance, emergency assistance or county crisis
      funds, energy or fuel assistance, and food support. The salary or
      earnings of any debtor who is or has been an eligible recipient of
      government assistance based on need . . . shall, upon the debtor’s
      return to private employment or farming after having been an eligible
      recipient of government assistance based on need, . . . be exempt from
      attachment, garnishment, or levy of execution for a period of six
      months after . . . all public assistance for which eligibility existed has
      been terminated. . . . . The burden of establishing that funds are
      exempt rests upon the debtor. . . .6
The statute does not specifically mention education credits in the list of examples
of the types of government assistance which are exempt. However, the list is not
exclusive, and so the question is whether the education credit portion of the tax
refund fits within the Minnesota legislature’s concept of “government assistance
based on need.”7

      We have recently said, in addressing whether a Minnesota state property tax
refund was exempt under § 550.37, subd 14:

      When a debtor elects to exempt property pursuant to state statute,
      courts determine such eligibility by looking to state law. In
      Minnesota, the goal of statutory interpretation is to determine the
      intent of the legislature. When ascertaining legislative intent, courts
      interpreting Minnesota statutes may be guided by the presumptions
      detailed in Minn. Stat. § 645.17. That statute provides that “the
      legislature does not intend a result that is absurd, impossible of
      6
          Minn. Stat. § 550.37, subd. 14 (emphasis added).
      7
       In re Johnson, 509 B.R. at 215 (citing In re Tomczyk, 295 B.R. 894, 896
(Bankr. D. Minn. 2003)).

                                          4
      execution, or unreasonable” and “the legislature intends the entire
      statute to be effective and certain.” It is well-settled that exemption
      statutes must be construed liberally in favor of the debtor and in light
      of the purposes of the exemption.8



      The Trustee asserts that the Bankruptcy Court erred in finding the Minnesota
Education Credit was government assistance because:         (a) the purpose of the
Education Credit is not to provide relief for low income families; (b) treating the
Education Credit refund as government assistance based on need leads to an
unreasonable result; and (c) the language of the statute is clear that Education
Credit refunds do not constitute government assistance based on need when
compared to the payments and subsidies specifically listed in Minn. Stat. § 550.37
subd. 14. He also asserts that the caselaw does not support the Bankruptcy Court’s
decision.

      The Trustee has concisely summarized the Minnesota Education Credit:
The Minnesota Education Credit was enacted in 1997 and is currently codified in §
290.0674 of the Minnesota Statutes. It is a refundable credit of up to 75 percent of
education-related expenses for each qualifying child in kindergarten through grade
twelve, with a maximum credit of $1,000 per child. The $1,000 maximum for one
child phases out at a rate of $1 for each $4 of income over $33,500, and the
maximum for more than one child ($1,000 multiplied by the number of qualifying
children) phases out at a rate of $2 for each $4 of income over $33,500. The credit
is fully phased out when income reaches $37,500 for families with two qualifying
children; when income reaches $39,500 for families with three qualifying children;
at $41,500 for families with four qualifying children; and so on.

      8
          Id. at 215-16 (citations omitted).

                                               5
      Minnesota also allows a tax deduction (as opposed to a tax credit) for
education related expenses of up to $2,500 for dependents in grades 7 to 12 and
$1,625 for each dependent in kindergarten through grade 6.9

      Eligible education expenses are the same for the deduction as they are for
the credit, except that payment of nonpublic school tuition qualifies for the
deduction, but does not qualify for the credit. Generally, eligible expenses for the
credit include expenses related to transportation, textbooks, instructional materials,
tutoring, academic summer school and camps, and up to $200 for computer or
education related software.10 The credit is fully refundable, meaning that, if an
individual’s Education Credit exceeds his or her tax liability, the excess is still paid
to the individual in the form of a refund check.11 In addition, parents may assign
payment of the credit to participating financial institutions and tax-exempt
foundations, and in effect, receive a loan that is paid directly to a third party
provider of educational services and programs.12 “This allows very low-income
families to purchase educational products and services in anticipation of receiving



      9
           Minn. Stat. § 290.01, subd. 19(b)(3).
      10
        Minn. Stat. §§ 290.01, subd. 19(b)(3); 290.0674 subd. 1. See also Nina
Manzi and Lisa Larson, The K-12 Education Deduction and Credit: An Overview,
House Research Short Subjects (January 2014), found at
http://www.house.leg.state.mn.us/hrd/pubs/ss/sseducdc.pdf .
      11
        Manzi and Larson, The K-12 Education Deduction and Credit: An
Overview, House Research Short Subjects (January 2014). See also Nina Manzi &
Lisa Larson, Income Tax Deductions and Credits for Public and Nonpublic
Education in Minnesota, House Research Department (September 2011) at 11,
found at http://www.house.leg.state.mn.us/hrd/pubs/educcred.pdf.
      12
           Id.

                                            6
a credit when they file their tax return the following year, with the credit paid
directly to the financial institution or foundation that accepted the assignment.”13

      As the Trustee points out, § 290.0674 does not have an express “purpose”
section, and legislative history as to the purpose of that particular statutory
provision is scant.14 In In re Johnson15 and In re Hardy,16 we looked at the
characteristics of the different types of income tax refunds to determine whether
the legislative purpose of the refunds was “based on need” under the plain and
ordinary meaning of the concept. In doing so, we approved the analysis in a prior
Minnesota bankruptcy court case determining that the federal Earned Income Tax




      13
           Id.
      14
         Hence, the Trustee points to the preamble to the overarching Act enacted
by the Minnesota legislature in 1997 dealing generally with education issues,
including § 290.0674:
      An act relating to education; kindergarten through grade 12; providing
      for general education; special programs; lifework development;
      education organization, cooperation, and facilities; education
      excellence; academic performance; education policy issues; libraries;
      technology; state agencies; conforming and technical amendments;
      school bus safety; tax deduction and credit; appropriating money;
      amending Minnesota Statutes . . . .

Education – K Through 12 – General Education, Special Programs,
Technology, Libraries, Academic Performance, Bus Safety, Taxes, 1997
Minn. Sess. Law Serv. 1st Sp. Sess. Ch. 4.
      15
           In re Johnson, 509 B.R. 213 (B.A.P. 8th Cir. 2014).
      16
           Hardy v. Fink (In re Hardy), 503 B.R. 722 (B.A.P. 8th Cir. 2013).

                                           7
Credit due a debtor was exempt.17 Without the benefit of clearly-stated legislative
purpose, the same principles apply here.

      Primarily, in order to be exempt, the refund must be intended to “address the
basic economic needs of low-income recipients.”18          As outlined above, the
Minnesota Education Credit at issue here is phased out at relatively low income
levels, similar to the income thresholds applicable to the federal Earned Income
Credit and the Minnesota Working Family Credit, which the Court in Tomczyk
held fall within the § 550.37, subd. 14 exemption.19 In contrast, we have held that
the Minnesota property tax refund is not “based on need” because it is available to
people earning more than $100,000, and in some cases, people with unlimited
income.20 Similarly, we held that the federal Additional Child Tax Credit was not
“based on need” where it was available to individuals earning more than $75,000
per year and married individuals earning $110,000.21




      17
           In re Tomczyk, 295 B.R. 894 (Bankr. D. Minn. 2003).
      18
       In re Johnson, 509 B.R. at 218-19 (quoting Burns v. Einess, 2011 WL
5829323 at *5 (Minn. Ct. App. Nov. 21, 2011) (not reported)).
      19
        In re Tomczyk, 295 B.R. 894. By way of example, for the 2013 tax year,
an individual’s adjusted gross income must be less than $37,870 ($43,210 for
married filing jointly) with one qualifying child to qualify for the federal Earned
Income Tax Credit. See http://www.irs.gov/pub/irs-pdf/p596.pdf at p. 17. The
Minnesota Working Family Credit tracks the federal EITC, so it is comparable as
well. See Tomczyk, 295 B.R. at 897, n. 3.
      20
           In re Johnson, 509 B.R. at 217, 219.
      21
           In re Hardy, 503 B.R. at 725.

                                           8
      The Trustee points to Mueller v. Allen,22 where the United States Supreme
Court was called upon to determine whether the Minnesota education tax
deduction was unconstitutional because people could claim the deduction for
tuition at parochial schools.23 The Supreme Court there said that one of the
reasons the deduction statute passed constitutional muster was that the tax
deduction has “the secular purpose of ensuring that the state’s citizenry is well-
educated,” as well as “assuring the continued financial health of private schools,
both sectarian and nonsectarian.”24 The Trustee therefore argues that the purpose
of both the deduction and the tax credit is to ensure education for the citizenry, not
to provide assistance based on need.

      Undoubtedly, giving children in Minnesota a quality education is one
purpose of the Education Credit, as the Supreme Court said it was for the education
deduction. But, the Supreme Court was not dealing with exemptions in Mueller v.
Allen, nor was it dealing with the Education Credit, and so it was not called upon
to determine whether the credit involved here is intended to assist low-income
people obtain a quality education for their children.

      The Trustee also relies on Burns v. Einess.25 In that case, the appellant
asserted that his wages were exempt from garnishment under § 550.37, subd. 14


      22
         463 U.S. 388, 103 S.Ct. 3062, 77 L.Ed.2d 721 (1983) (analyzing the then-
current statute, Minn. Stat. § 290.09(22), now codified at § 290.01, subd. 19b(3)).
      23
          Note that, as mentioned above, in contrast to the deduction at issue in
Mueller v. Allen, private school tuition is not a qualifying education expense for
the Education Credit at issue here, so no one has asserted that the Education Credit
violates the Establishment Clause of the First Amendment.
      24
           463 U.S. at 395, 103 S.Ct. at 3067.
      25
           2011 WL 5829323 (Minn. Ct. App. Nov. 21, 2011) (not reported).
                                           9
because he had been given in forma pauperis status in state court proceedings
within the prior six months.26 In essence, he asserted that the IFP status was
awarded “based on need,” and so the appellant fit within the exemption protecting
income of those receiving assistance based on need within the prior six months.
The Minnesota Court of Appeals rejected that argument, however, because,
“[a]lthough IFP status is awarded based on need, its purpose is to provide access to
the courts and not to address basic economic needs.”27 Moreover, the Court held,
“the evaluation of an IFP application is significantly less rigorous than the
evaluation of qualifications for the assistance programs listed in section 550.37,
subd. 14,” which “provide direct payments or subsidies to address the basic
economic needs of low-income recipients.”28 The Trustee asserts that, like IFP
status, the Education Credit has an “economic component.” But, he asserts, it does
not provide direct payments or subsidies to address the basic needs of low-income
recipients; instead, it simply provides access to the courts.

      Education – like food and medical care – is a basic need of all children in
Minnesota, and we believe the Education Credit’s ultimate purpose is to assist
people with low incomes in providing an education for their children. In contrast
to being given IFP status, the Education Credit is in monetary form (like the
federal EIC is) and, thus, does indeed provide “direct payments or subsidies to



      26
          Recall, § 550.37, subd. 14 also protects “[t]he salary or earnings of any
debtor who is or has been an eligible recipient of government assistance based on
need . . . for a period of six months after . . . all public assistance for which
eligibility existed has been terminated.”
      27
           Id. at *5.
      28
           Id.

                                          10
address the basic economic needs of low-income recipients” in obtaining quality
education for their children.

      The Trustee next asserts that, because payment of education-related
expenses is “voluntary,” it is similar to an employed taxpayer overwithholding in
order to receive a refund, and not need-based assistance. We disagree. As the
Court in Tomczyk held with regard to the exempt federal EIC, and as we said in In
re Johnson, it is significant that the Education Credit here is not, technically, a
refund, inasmuch as a person is entitled to receive it regardless of whether they had
any tax liability.29 Rather, as opposed to being a refund of an overpayment of
taxes which have been paid by the taxpayer, the Education Credit is monetary
assistance the Minnesota legislature has determined relatively low-income people
should be given--whether they paid any taxes or not-- to assist with their children’s
education. As such, it is assistance “based on need,” not a voluntary pseudo-
savings program.

      Finally, the Trustee asserts that giving the Education Credit exempt status
under § 550.37, subd. 14 leads to an absurd result because the income of anyone
who receives such a credit is protected outside of bankruptcy for six months. In
other words, someone wishing to protect their income or assets from collection
outside of bankruptcy could do so by claiming the credit. But that is true of all
kinds of need-based assistance, and that is one reason we believe the income
thresholds are particularly important inasmuch as they hamper potential abuse.

      In sum, we believe the Education Credit is more comparable to the federal
EIC, which Tomczyk held to be exempt, than it is to the federal Additional Child
Tax Credit, Minnesota’s property tax credit, or being granted IFP status in court
      29
           In re Tomczyk, 295 B.R. at 896; In re Johnson, 509 B.R. at 216.

                                          11
proceedings. Because the Education Credit is available only to individuals with
relatively low income, is a refundable credit (as opposed to a refund of
overpayment of taxes) and because it is, in large part, intended to assist low-
income individuals in obtaining quality education for their children, we conclude
that it is a “direct payment[] or subsid[y] to address the basic economic needs of
low-income recipients” in obtaining such quality education for their children. It is,
therefore, government assistance based on need under § 550.37, subd. 14, and the
Bankruptcy Court correctly concluded it is exempt under that statute.

                                     CONCLUSION

      Based on the foregoing, the Order of the Bankruptcy Court permitting the
Debtor’s claimed exemption in the portion of his state income tax refund
attributable to the Minnesota Education Credit as a “government assistance
benefit” is AFFIRMED.

                           ________________________




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