BILL ANALYSIS Ó AB 929 Page 1 Date of Hearing: May 11, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 929 (Wieckowski) - As Amended: March 31, 2011 Policy Committee: JudiciaryVote:8-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill: 1) Revises and expands the set of bankruptcy exemptions ("Section 703 exemptions") that a bankruptcy debtor may elect in lieu of all other exemptions so that it more closely corresponds to the broader set of all other property exemptions ("Section 704 exemptions") generally available to debtors in California seeking to exempt specified property from enforcement of a money judgment. 2) Increases the amounts of the homestead exemption under Section 704.730, as follows: (a) the base homestead exemption from $75,000 to $150,000; (b) from $100,000 to $250,000 for a married couple who resides in the homestead; and (c) from $175,000 to $350,000 if the judgment debtor or spouse who resides in the homestead is 65 years of age or older, disabled, or 55 years of age or older with a limited income. FISCAL EFFECT Negligible fiscal impact. COMMENTS 1) Background . Both the federal Bankruptcy Code and California law provide numerous exemptions that are intended to save bankruptcy debtors and their families from extreme hardship. California has chosen to opt-out of the AB 929 Page 2 federal exemption scheme, so California residents filing for bankruptcy are limited to the exemptions afforded under state law. Under state law, California bankruptcy debtors have two sets of exemption options to choose from, one set of state law non-bankruptcy exemptions ("Section 704 exemptions") and a second set modeled after federal bankruptcy exemptions ("Section 703 exemptions"). The debtor may choose only one set of exemptions, however. A comparison between these two sets of exemptions reveals that the §704 exemptions are more numerous and better protect debtors who own homes, because of the more generous homestead exemption provided by Section 704.730 ($75,000 base level) as compared to its counterpart under §703.140(b) ($17,425). Section 704 exemptions are not limited to bankruptcy cases, but are generally available to debtors in California seeking to exempt certain property from enforcement of a money judgment. On the other hand, some debtors may benefit more by choosing the § 703 exemptions because of the unique "wild-card" exemption (Section 703.140(b)(5)) that provides flexibility to protect equity in a variety of property. If the debtor is not a homeowner or does not wish to protect equity in the home, the $17,425 exemption becomes a "wildcard" and may be used to protect any of the debtor's property. In short, the debtor often must choose between the larger homestead exemption under the §704 slate, at the expense of flexibility offered by the wildcard exemption under the §703 slate. 2) Purpose . According to the author, an experienced bankruptcy attorney, significant revisions to the Section 703.140(b) slate of exemptions are warranted to assist bankruptcy debtors in California, especially in light of the current mortgage crisis and poor economy. The author states, "Considering the current dire situation with home ownership and financial struggle in the state, assisting debtors in recovering from hardship could not be timelier. A person filing for bankruptcy who has a decent amount of equity in his home would be wise to choose (the § 704 slate) because it affords more exemptions. Many people however are in the unfortunate position of being upside-down on their mortgages in that they paid more than their home is now worth. There are also others who do not own a home or have very little equity in their home. For AB 929 Page 3 these people, (the § 703 slate) is the appropriate exemption statute, but both the categories of exemptions and the quantity available for exemption are drastically less. This bill would create a more even and fair § 703.140 so that it reflects (the § 704 slate) more closely and does not strip a debtor of the essential items he needs to recover from financial insolvency." 3) Homestead Exemption . The purpose of the homestead exemption is to allow judgment debtors to salvage at least a portion of any equity that they may have built up in their house. According to the author, this bill increases the base homestead exemption to $150,000 because that amount represents approximately half of the median home price in California ($286,000) according to California Association of Realtors' market data from March 2011. 4) Prior Legislation : AB 1046 (Anderson)/Chapter 499 of 2009, increased the homestead exemption by $25,000 and required the Judicial Council to adjust the exemption every three years thereafter to account for inflation. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081