BILL ANALYSIS
AB 182
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Date of Hearing: March 4, 2003
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 182 (Harman) - As Introduced: January 27, 2003
SUBJECT : BANKRUPTCY: EXEMPT PROPERTY
KEY ISSUE : IN CONFORMANCE WITH FEDERAL LAW AND IN ORDER TO
AVOID THE NEED FOR PERIODIC LEGISLATION, SHOULD THE AMOUNT OF
PERSONAL PROPERTY EXEMPT FROM ENFORCEMENT OF A MONEY JUDGMENT BE
AUTOMATICALLY ADJUSTED FOR INFLATION?
SYNOPSIS
Under existing California law, the amounts of personal property
that are exempt from enforcement in bankruptcy proceedings or
proceedings to enforce a money judgment is subject to review by
the California Law Revision Commission every ten years, at which
time the statutorily set amounts may be adjusted for inflation.
This bill, sponsored by the Law Revision Commission, would
mirror federal bankruptcy law and create a mechanism whereby the
exempt amounts would be automatically adjusted for inflation
every three years. This automatic adjustment would keep the law
current without the need for the Legislature to put in the time
and resources necessary to consider periodic bills to do this
essentially ministerial act. The bill is opposed by the
California Bankers Association, which believes that adjustment
of the exemption amounts should be the product of a deliberative
process. Their concern appears unwarranted, as nothing in the
provisions for automatic adjustment prevents the Legislature
from making other adjustments as necessary.
SUMMARY : Creates a mechanism for automatic adjustment for
inflation of the amounts of personal property exempt from
enforcement in bankruptcy proceedings or proceedings to enforce
a money judgment. Specifically, this bill :
1)Requires Judicial Council to include, in the form it prepares
listing the federal and state exemptions from enforcement of a
money judgment against a natural person, a list of the amounts
of exemptions that have been adjusted together with a
statement of the date of the next scheduled adjustment.
2)Deletes the provision for adjustment of bankruptcy exemptions
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under California law in accordance with the periodic
adjustments of similar exemptions provided under federal
bankruptcy law.
3)Provides that, beginning on April 1, 2004, and every three
years thereafter, the dollar amounts of personal property
exemptions applicable in bankruptcy matters shall be adjusted
as determined by Judicial Council rule, based on the change in
the annual California Consumer Price Index for All Urban
Consumers.
4)Provides that, beginning on April 1, 2007, and every three
years thereafter, the dollar amounts of personal property
exempt from enforcement of money judgments shall be adjusted
as determined by Judicial Council rule, based on the change in
the annual California Consumer Price Index for All Urban
Consumers.
5)Adjusts for inflation the amounts of personal property exempt
from enforcement of money judgments, based on the change in
the annual California Consumer Price Index for All Urban
Consumers since the last adjustment.
EXISTING LAW :
1)Requires Judicial Council to prepare a form containing a list
of each of the federal and California exemptions from
enforcement of a money judgment against a natural person.
(Code of Civil Procedure section 681.030. All further
references are to the Code of Civil Procedure unless otherwise
noted.)
2)Sets forth amounts of property exemptions that may be elected
by a debtor in a bankruptcy case under Title 11 of the U.S.
Code. The amounts are the same as the exemption amounts set
in federal law, and are required to be adjusted in accordance
with the periodic adjustments of similar exemptions provided
under federal bankruptcy law. (Section 703.140, tracking
provisions of 11 U.S.C. section 522 (d).)
3)Sets forth the dollar amounts of various kinds of personal
property that are exempt from enforcement of a money judgment.
(Sections 704.010 through 704.210.)
FISCAL EFFECT : The bill as currently in print is keyed
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non-fiscal.
COMMENTS : This bill is sponsored by the California Law
Revision Commission (CLRC) to update the dollar amounts of
personal property exemptions in cases to enforce money
judgments, and to create an automatic mechanism to update the
exemption amounts in bankruptcy cases and cases to enforce money
judgments for inflation.
In bankruptcy law, dollar amounts of various types of property
are set aside as exempt from inclusion in the bankruptcy estate
against which creditors may collect. This is necessary to
protect property necessary for the basic support of the debtor
and his or her dependent family. Thus, for example, a bankrupt
debtor may claim an exemption of up to $17, 425 in value in
property that the debtor uses as a residence, in addition to
other exemptions in specified dollar amounts for a motor
vehicle, household goods, and additional items. (Code of Civil
Procedure (CCP) section 703.140.) Similarly, dollar amounts of
various types of property exempt from enforcement of a money
judgment are set in state law. (CCP section 704.010 et seq. )
Federal bankruptcy law sets dollar amounts of property exempt
from the bankruptcy estate and provides for the periodic
automatic adjustment of these amounts for inflation. (11 U.S.C.
section 522 (b), 11 U.S.C. section 104(b)(1).) Federal law
allows states to opt out and set their own amounts for
exemptions in bankruptcy. (11 U.S.C. section 522 (b)(1).)
California has opted out of the federal exemptions, but its
state exemptions for bankruptcy mirror the federal exemptions
and provide for adjustment in accordance with any adjustments
made in federal law. (CCP section 703.130, opting out; section
703.140(c), adjusting in accordance with federal law.)
Unlike federal law, under California law regarding exemptions
from enforcement of a money judgment, there is no automatic
adjustment of exemption amounts for inflation. Instead, the law
provides for a review of these amounts every ten years by the
CLRC. (CCP section 703.120.) Legislative action is required to
implement any recommendations that the CLRC would make. Under
AB 182, adjustments for inflation would become automatic every
three years, as they are under federal law, saving the
legislative time and other resources that would otherwise have
to be devoted to this straightforward and generally
noncontroversial matter. The mechanism for adjustment under AB
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182 uses the California Consumer Price Index for All Urban
Consumers as the basis for the percentage adjustment, rounded to
the nearest twenty-five dollars. AB 182 makes the first needed
adjustments to the exemption amounts with regard to enforcement
of money judgments, as these amounts have not been adjusted
since 1995. The first automatic adjustment of the bankruptcy
exemptions would take place on April 1, 2007.
AB 182 does not create automatic adjustment of the homestead
exemption from enforcement of money judgments. CLRC states:
"The homestead exemption receives frequent legislative
attention, because of the obvious importance of the home, the
high level of the exemption, and the role played by interest
groups that can effectively sponsor legislation. "
ARGUMENTS IN OPPOSITION : The California Bankers Association
(the Association) opposes the automatic adjustment process
created under AB 182. The Association states:
In its current form, AB 182 will take away the confidence
that these adjustments will be the product of a thoughtful
and deliberative process that takes into account among
other things, inflation, the economy, and current
bankruptcy rates.
This concern appears to be unwarranted. Exemption amounts in
bankruptcy cases are already adjusted automatically in
accordance with the automatic adjustments under federal law. AB
182 simply creates California's own mechanism for adjustment.
As to the exemption amounts in cases to enforce money judgments,
nothing in AB 182 prevents the Legislature from making
adjustments to exemption amounts as it sees fit, in addition to
the automatic adjustments under the bill. Indeed, as noted
above, the homestead exemption is not subject to the automatic
adjustments created under the bill and will likely be the
subject of future legislative attention. Thus there will
frequently be opportunities for interested groups to raise the
subject of any needed adjustments to other exemption amounts.
Moreover, the provision requiring review by the CLRC every ten
years would remain in effect and would provide another vehicle
for groups to raise any issues that arise as to exemption
amounts.
REGISTERED SUPPORT / OPPOSITION :
AB 182
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Support
California Law Revision Commission (sponsor)
State Bar of California, Standing Committee on Insolvency Law
Professor Kenneth N. Klee, Professor of Law, UCLA School of Law
Opposition
California Bankers Association
Analysis Prepared by : Kathy Sher / JUD. / (916) 319-2334