BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          AB 929 (Wieckowski)
          
          Hearing Date: 08/25/2011        Amended: 03/31/2011
          Consultant: Jolie Onodera       Policy Vote: Judiciary 3-2
          _________________________________________________________________
          ____
          BILL SUMMARY: AB 929 would revise and expand the set of specific 
          asset exemptions available to bankruptcy debtors (the "703 
          exemptions") to generally conform to the exemptions under 
          existing law available to all debtors in California seeking to 
          exempt specified property from enforcement of a monetary 
          judgment (the "704 exemptions"). The bill would also 
          significantly increase the homestead exemption that is available 
          to all judgment debtors.
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          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           
          Delayed FTB tax collection*       $1,100      $1,500    
          $1,400General          

          Debt collection costs  Unknown; dependent on the length of 
          General
                                 time required to receive full payment

          Update homestead       Minor, absorbable costs to Judicial 
          Council                General**
          exemption rates        to update and post rates on their website

          *Delayed tax collections of $200 in 2010-11 (for revenue accrued 
          back one year)
          **Trial Court Trust Fund                                
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          ____

          STAFF COMMENTS: SUSPENSE FILE. 

          In a bankruptcy action, exemptions generally allow a person to 
          protect certain types of assets during the bankruptcy process. 
          If an asset is exempt, the asset can generally not be taken to 
          pay creditor's claims. Individuals filing bankruptcy in 
          California can choose between two different sets of exemptions: 
          the 703 exemptions or the 704 exemptions.






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          The "703 exemptions," located in Code of Civil Procedure Section 
          703.140(b), consist of eleven categories that are modeled after 
          federal bankruptcy law. Those exemptions include a "wildcard" 
          exemption of up to $23,250 that may be applied to any property. 
          That application is important for those individuals who have 
          little or no equity in a home.

          In comparison, the "704 exemptions," contained in Code of Civil 
          Procedure Section 704, provide 21 different types of exemptions 
          that protect a wider range of property but do not include a 
          "wildcard" exemption to cover unlisted property. The homestead 
          exemption is also significantly greater, providing a base 
          exemption of $75,000, $100,000 for married individuals, and 
          $175,000 for seniors and disabled individuals, as specified. It 
          should also be noted that the 703 exemptions are specific 
          exemptions that a bankruptcy debtor may elect in lieu of all 
          other exemptions, while the 704 exemptions are available to all 
          debtors in California seeking to exempt specified property from 
          enforcement of a money judgment.

          This bill would revise and recast the 703 exemptions so that the 
          exemption language generally mirrors the corresponding 704 
          exemptions for various assets and would increase the dollar 
          amount of the exemption for a debtor's interest in motor 
          vehicles, household furnishings, jewelry, and tools/professional 
          equipment. 
           
           Existing law provides that a person or family unit may protect a 
          specified portion of the value of their principal dwelling 
          (homestead) from being sold pursuant to a court order to satisfy 
          a debt to creditors. This bill would significantly increase the 
          existing homestead exemptions as follows:
                 From $75,000 to $150,000 for the base exemption;
                 From $100,000 to $250,000 for married individuals; and
                 From $175,000 to $350,000 for individuals aged 65 or 
               older, disabled, or age 55 or older with limited income.

          The limits were last adjusted in 2009, when the above exemptions 
          were raised from $50,000, $75,000, and $150,000, respectively. 
          Under current law, the Judicial Council, on April 1, 2013, and 
          at each three-year interval thereafter, is required to submit to 
          the Legislature the amount by which the dollar amounts of the 
          above homestead exemptions may be increased based on the change 
          in the annual California Consumer Price Index (CPI) for All 
          Urban Consumers and post the updated rates on their website. The 






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          Judicial Council has indicated there would be minor and 
          absorbable costs to adjust the homestead exemption limits as 
          required by this bill and post them on the website.  
           
          Fiscal revenues collected by the Franchise Tax Board (FTB) for 
          personal income tax Chapter 7 and Chapter 13 filings totaled 
          $11.6 million in 2009-10, and have increased to $18.7 million in 
          2010-11 (year to date). Due to the increase in the exemption 
          limits for motor vehicles, household furnishings, jewelry, and 
          tools/equipment, the FTB estimates the provisions of this bill 
          would reduce the amount of tax collections from bankruptcy cases 
          by approximately five percent annually. The impact of the 
          increased homestead exemption limits is estimated to be similar 
          in magnitude. This impact represents a delay, rather than a 
          loss, in tax collections, as FTB would have a lien in place to 
          collect the tax debts in full upon the eventual sale of the home 
          and/or assets. Further, FTB could collect unpaid debt by 
          garnishing wages and/or levying bank accounts. FTB estimates a 
          decrease in revenue due to delayed collections of $200,000 in 
          2010-11 (as revenue is accrued back one year), $1.1 million in 
          2011-12, $1.5 million in 2012-13, and $1.4 million in 2013-14.
          
          Dependent on the length of time it takes to receive full payment 
          on the income tax debt, additional costs of an unknown amount 
          would also be incurred for collection costs associated with 
          retaining the account in inventory, maintaining current 
          information, finding assets, and contacting the taxpayer.
          
          Prior Legislation. AB 1046 (Anderson) 2009 was related to this 
          measure and increased the homestead exemptions to their current 
          levels and requires the Judicial Council, on April 1, 2013, and 
          at each three-year interval thereafter, to submit to the 
          Legislature the amount by which the homestead exemptions may be 
          increased based on the change in the annual CPI for All Urban 
          Consumers.