When "Welfare" Becomes "Work Support": Exempting Earned Income Tax Credit Payments in Consumer Bankruptcy

The question the Western District of Kentucky sent back to its bankruptcy court - whether EITC is always exempt or just sometimes exempt under Kentucky law - has yet to be answered. The huge changes welfare reform wrought over the past decade raise the possibility that even in a jurisdiction such as Kentucky with a very specific and complex exemption statute, EITC should always be considered exempt, and if precise statutory language does not allow such a holding, Congress or the relevant state legislature should take the appropriate action to make it so. The earned income tax credit's real impact is not just as a cash payment income supplement, but also as an incentive to increase actual earned income from work. EITC first counteracts the strong attraction of staying home with children for otherwise low income workers by supplementing earning so much that work becomes extremely attractive.