“Full-Refund Attribution” in Colorado Bankruptcy:
The Tenth Circuit’s Clarification of § 13-54-102(1)(o) in In re Garcia-Morales

Introduction

The United States Court of Appeals for the Tenth Circuit has resolved a long-simmering dispute among Colorado bankruptcy practitioners: When is a debtor’s income-tax refund fully exempt under Colorado’s child-tax-credit exemption? In In re Garcia-Morales, No. 24-1384 (10th Cir. Aug. 19, 2025), the court held that if a refundable Child Tax Credit (“CTC”) is the but-for cause of the refund, the entire refund is exempt property, immune from turnover to the Chapter 7 trustee.

The decision cements what this commentary will call the “Full-Refund Attribution Doctrine,” clarifying the meaning of the phrase “attributed to” in Colo. Rev. Stat. § 13-54-102(1)(o) and affording debtors a broader shield than some trustees had argued for. It rejects the pro-rata allocation method championed by trustees and embraces a straightforward, causation-oriented reading, guided by Colorado’s constitutional command to construe exemptions liberally in favor of debtors.

Summary of the Judgment

José L. Garcia-Morales filed a voluntary Chapter 7 petition. His 2021 joint federal return generated a $1,455 refund comprised of (i) $8,140 wage withholdings and (ii) an $1,800 refundable CTC, offset against an $8,485 tax liability. The Chapter 7 trustee sought turnover of the portion of the refund attributable to wage withholdings, arguing that only the slice traceable to the CTC (about 18.59%) was exempt.

Both the bankruptcy court and the district court sided with the debtor, ruling that Colo. Rev. Stat. § 13-54-102(1)(o) exempts the “full amount of any … refund attributed to … a child tax credit.” On further appeal, the Tenth Circuit affirmed, holding:

1. “Attributed to” denotes simple (but-for) causation, requiring only that the CTC be a factual cause without which the refund would not exist.
2. Because the debtor’s $1,800 refundable CTC exceeded the $1,455 refund, the credit alone produced the refund; therefore, the full refund is exempt.
3. Liberal-construction principles and the statutory phrase “full amount” foreclose a pro-rata allocation between exempt and non-exempt components.

Detailed Analysis

1. Precedents and Authorities Considered

• In re Borgman, 698 F.3d 1255 (10th Cir. 2012)
  • Addressed non-refundable CTCs and adopted a pro-rata approach for certain exemptions.
  • Distinguished here because non-refundable credits are not “payments,” hence do not create refunds. Garcia-Morales involves a refundable credit, capable of generating a refund outright.
• In re Barowsky, 946 F.2d 1516 (10th Cir. 1991)
  • Recognized that tax refunds, to the extent attributable to pre-petition earnings, enter the bankruptcy estate. Used here to frame the trustee’s turnover power.
• Colorado Cases:
  • Rocky Mountain Planned Parenthood v. Wagner, 467 P.3d 287 (Colo. 2020) – explained “but-for” causation in tort; adopted by the Tenth Circuit as the default causation model.
  • Roup v. Commercial Research, 349 P.3d 273 (Colo. 2015); Sandberg v. Borstadt, 109 P. 419 (Colo. 1910) – reiterated Colorado’s mandate to construe exemptions liberally.
  • Springer v. City & County of Denver, 13 P.3d 794 (Colo. 2000) – warned courts against engrafting unexpressed limitations into statutes; supports rejecting pro-rata gloss.
• Statutory Framework:
  • 11 U.S.C. § 541(a) (scope of estate); § 522(b)(2) (state-law exemptions).
  • Colo. Rev. Stat. § 13-54-102(1)(o) (2021) – “full amount… attributed to an earned income tax credit or a child tax credit.”
  • Colo. Rev. Stat. § 13-54-107 – Colorado’s opt-out provision.
  • 2022 amendments adding tracing rules (§ 13-54-102(6)) – noted but not controlling.

2. The Court’s Legal Reasoning

1. Plain-Language Examination
   • “Attribute” commonly means “to regard as caused by.”
   • Presence of “full amount” signals legislative intent to exempt the entire refund once the statutory trigger (refund caused by CTC/EITC) is satisfied.
2. Choice of Causation Standard
   • Colorado tort jurisprudence defaults to but-for causation absent explicit language to the contrary.
   • The refundable CTC exceeded the refund; ergo, but-for the credit, no refund would exist.
3. Rejection of Pro-Rata Allocation
   • Nothing in § 13-54-102(1)(o) contemplates allocation; legislature could have used “portion” or “percentage” language but did not.
   • Applying a pro-rata method would dilute “full amount” and conflict with the constitutional directive for liberal construction.
4. Liberal-Construction Canon
   • Colorado Constitution art. XVIII, § 1 mandates “liberal” exemption laws.
   • Where two plausible readings exist, courts must prefer the one more protective of the debtor; here, that is the debtor’s total-exemption reading.

3. Impact and Future Ramifications

The decision will reverberate beyond this single case:

• Binding Precedent in the Tenth Circuit for all bankruptcy courts sitting in Colorado and for district courts when interpreting the 2021 version of § 13-54-102(1)(o).
• Practical Effect on Trustees – Trustees must now treat refunds traceable to refundable CTCs or EITCs as wholly exempt, streamlining administration but potentially reducing funds for unsecured creditors.
• Guidance on Statutory Interpretation – Reinforces that “liberal construction” is not lip service; it commands substantive debtor-friendly outcomes even where alternative readings are plausible.
• Legislative Response – If policymakers wish to curtail the broad exemption, they must amend the statute explicitly (e.g., adopting the tracing formula that Colorado added for other assets in 2022).
• Influence on Other Jurisdictions – States with similarly worded exemptions (e.g., Utah, New Mexico) may look to Garcia-Morales when their courts confront comparable disputes.

Complex Concepts Simplified

• Chapter 7 Bankruptcy – A liquidation chapter where a trustee collects and sells the debtor’s non-exempt property to pay creditors.
• Exemption – A statutory right allowing debtors to shield certain property from the estate, enabling a “fresh start.”
• Refundable vs. Non-Refundable Tax Credits
  • Refundable credits can generate a refund even if they exceed tax liability.
  • Non-Refundable credits can only reduce tax owed to zero; any excess is lost and cannot create a refund.
• But-For Causation – A straightforward test: if event A would not have occurred without factor B, then B is a cause of A.
• Pro-Rata Allocation – A mathematical method dividing a whole according to the proportion contributed by each component (rejected here).
• Opt-Out State – A state, such as Colorado, that tells debtors they may use only state, not federal, exemption statutes.

Conclusion

In re Garcia-Morales crystallizes Colorado exemption law by adopting a debtor-friendly, causation-based reading of “attributed to” in § 13-54-102(1)(o). The Tenth Circuit’s embrace of the Full-Refund Attribution Doctrine aligns with Colorado’s constitutional commitment to liberal exemption laws and affords clarity to debtors, trustees, and courts alike. Unless and until the Colorado legislature revises the statute, a refundable child tax credit that triggers a refund will shield that refund in its entirety from the bankruptcy estate, ensuring that low- and middle-income families who rely on refundable credits retain a crucial financial lifeline even in insolvency.