This week, Noah H. Marks (UNC) reviews a new work by Michelle L. Drumbl (Washington & Lee), Poverty, Fresh Starts, and the Social Safety Net, 98 Temple L. Rev. 57 (2025):

From the outside, the interface between federal income tax law and bankruptcy law (itself a combination of federal and state law) is a technical morass of dueling policy priorities and incongruent statutory terms and provisions. But over the decades, legislative priorities and procedures have resulted in ever more social programs and substantive policy goals being embedded in the tax code through tax credits and deductions. Because the beneficiaries of means-tested programs, credits, and deductions are disproportionately likely to seek relief in Chapter 7 (or, less frequently, Chapter 13) bankruptcy, the intersection of tax and bankruptcy for individuals has become increasingly salient and important.

Michelle Drumbl’s recent piece, Poverty, Fresh Starts, and the Social Safety Net, brings that important insight to the fore. Her article thoroughly examines and interrogates one particularly consequential—and fluid—area of tax/bankruptcy overlap: whether, where, how, and why the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are or are not accounted for in a taxpayer’s bankruptcy estate.

Drumbl starts by clearly laying out the technical mechanics (both current and past) of and the congressional rhetoric regarding the EITC and the CTC. For example, she emphasizes (1) EITC eligibility is narrower (i.e., more targeted to the poor) than CTC eligibility, (2) the EITC is refundable while the CTC is only partially refundable (referred to as the “Additional” or “ACTC”), and (3) the EITC amount increases, plateaus, and decreases while the CTC is fixed up until the phaseout threshold. Regarding rhetoric, Drumbl contrasts the EITC’s roots in welfare reform and a congressional desire to provide a “work bonus” with the CTC’s growth out of a congressional desire to support families whose financial burdens grow as the number of children increases. Most significantly, the EITC and CTC are conceptualized by Congress and beneficiaries as being distinct from welfare and other forms of direct public assistance.

Turning to bankruptcy law, Drumbl’s article helpfully starts from square one and lays out basic definitions and distinctions. Bankruptcy provides debtors with a fresh start while marshalling a significant portion of their assets (those in the “bankruptcy estate”) to satisfy creditors to the extent possible. By default, the bankruptcy estate includes all legal or equitable interests of the debtor as of the commencement of the case (which includes certain future interests and property interests the bankruptcy estate acquires after case commencement). That rule leads to fascinating and nuanced timing questions. The article highlights that most—but not all—courts prorate the ETIC across the relevant year (partially attributable to taxpayers’ prior ability to elect the refund across each pay period via reduced withholdings). By contrast, the CTC has more varied treatment across jurisdictions, from not being part of the estate at all to accruing at the end of the year.

Timing is only one piece of the bankruptcy/tax puzzle, however. To support a fresh start, the Bankruptcy Code contemplates certain assets as being exempt from liquidation. Complexity arises because federal law provides a list of federal exemptions, and every state has their own list of exemptions. Debtors can ostensibly choose between the federal list and the state list (though they cannot mix and match), but most states have opted out of the federal list, leaving the state list as their debtor’s only option. For EITC- (and, to a lesser extent, CTC-) eligible individuals, tax refunds likely make up a significant portion of any bankruptcy estate, making the refund’s inclusion or exclusion particularly significant. Exemptions are liberally construed in the debtor’s favor, and Drumbl highlights Alan Resnick’s work identifying five distinct social policies that undergird exemptions, including ensuring physical survival, enabling financial rehabilitation, and protecting the debtor’s family.

The bulk of the article, reflecting comprehensive statutory and caselaw review and classification, contains state-by-state analysis and typology of how each jurisdiction treats the EITC and CTC in bankruptcy. Drumbl classifies states into one of four categories: express statutory protection of the EITC (and sometimes, the CTC) (14 states); statutory protection of “public assistance” (8 states); statutory protection for only state or local “public assistance” (11 states, including 5 that have no judicial interpretation regarding whether the provision captures the EITC or CTC); and no protection for any public assistance (the remaining approximately 1/3 of states). This detailed and careful work will surely be immensely helpful to anyone practicing or advising EITC- or CTC-eligible taxpayers facing bankruptcy, including legal clinics around the country.

From a more systemic, tax policy perspective, one of the most interesting aspects of the survey is what it finds in the second category, states that protect “public assistance.” Drumbl highlights that, unlike the way tax policymakers and Congress talk about the EITC, courts have carefully parsed its eligibility provisions and evolution over time to find that the “public assistance” exemption applies. Applying the same analysis to the CTC leads to the opposite result, seemingly in no small part due to the significantly broader eligibility and different congressional roots. The article raises the specter of this discrepancy tainting and undermining the bipartisan consensus around the EITC precisely because it is tied to work. While it would be surprising for bankruptcy court jurisprudence to pierce through and shift tax policy debates, for better or worse, stranger things have happened.

Finally, returning to Resnick’s framework, Drumbl closes by arguing for increased protection of refundable tax credits in bankruptcy, based on their role enabling a fresh start and supporting a debtor’s family members. The article also dissects a 1986 Supreme Court opinion (Sorenson v. Secretary of the Treasury) and argues that it does not preclude such efforts. At the same time, additional protection must be legislative. While unlikely to occur, the article shows how this could be achieved through revisions to either code (tax or bankruptcy). More realistically, Drumbl flags the potential for model legislation to (slowly) displace the piecemeal status quo.

It is easy to examine (and critique) the EITC and the CTC as classic examples of tax statutory puzzles. By widening the lens to include bankruptcy, Drumbl makes the picture more realistic (and yes, even more complex). Doing so also surfaces deep classification, timing, and ordering dimensions which apply to tax credits more broadly and should be part of the conversation as they’re increasingly looked to as the means to achieve substantive, non-tax policy goals.

Here is the rest of this week’s SSRN Tax Roundup:

Gary Cornell (Scitility PBC), Taxing Beta, Exempting Alpha: A Benchmark-Based Inheritance Regime (Feb. 12, 2026)

Christine Cuny (NYU, Stern School of Business), Amanda Beck (Georgia State University) & Sara Malik (Utah, Eccles School of Business), How Information Frictions Shape Tax-Motivated Giving (Feb. 12, 2026)

Michelle Hanlon (MIT, Sloan School of Management), Nemit Shroff (MIT, Sloan School of Management) & Rachel Yoon (BU, Questrom School of Business), Taxes and Competition: Evidence from the Airline Industry (Feb. 8, 2026)

Oluwadara Ilori (Independent) & Peter Okediya (Independent), Tax Incentives for Nigerian Oil and Gas Companies under the Nigeria Tax Act (Feb. 10, 2026)

Dhruv Janssen-Sanghavi (Maastricht University, Faculty of Law), Lifting of the Corporate Veil vis-à-vis Tax Treaties: Examining the Vodafone Controversy (Feb. 5, 2026)

Aya Selim (American University in Cairo), Khaled M. Dahawy (American University in Cairo), Mohammed Bouaddi (American University in Cairo) & Hassan Shehata (American University in Cairo), Do Tax Savings from Tax Aggressiveness Reach the Shareholders? Evidence from Companies Listed on the Egyptian Stock Exchange (Feb. 9, 2026)

Tu Anh Tran (Leeds International Study Centre; National Economics University of Vietnam), “Reciprocal Tariffs” as a Geoeconomic Policy Tool: Insights from Southeast Asia (Feb. 11, 2026)