BILL ANALYSIS Ó AB 1388 Page 1 ASSEMBLY THIRD READING AB 1388 (Wieckowski) As Amended April 26, 2011 Majority vote JUDICIARY 7-2 ----------------------------------------------------------------- |Ayes:|Feuer, Atkins, Dickinson, | | | | |Huber, Huffman, Monning, | | | | |Wieckowski | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Wagner, Jones | | | | | | | | ----------------------------------------------------------------- SUMMARY : Allows the court to grant a judgment debtor's claim of exemption from wage garnishment in cases where the underlying debt was incurred for medical care or hospital services rendered to the judgment debtor or his or her family. Specifically, this bill provides that the term "common necessaries of life" does not include hospital services or medical care, for the purpose of determining whether a specified exception applies that would prevent the judgment debtor from successfully claiming the statutory exemption from levy of the portion of the judgment debtor's earnings that he or she proves is necessary to support himself or herself and his or her family. EXISTING LAW : 1)Exempts from levy, with certain categorical exceptions, the portion of a judgment debtor's earnings which the judgment debtor proves is necessary for the support of the judgment debtor or his or her family supported in whole or in part by the judgment debtor. 2)Provides that the above exemption is not available if any of the following exceptions applies: a) The debt was incurred for the common necessaries of life furnished to the judgment debtor or the family of the judgment AB 1388 Page 2 debtor; b) The debt was incurred for personal services rendered by an employee or former employee of the judgment debtor; c) The order is a withholding order for support to collect delinquent amounts payable under a judgment for the support of a child, or spouse or former spouse, of the judgment debtor; or, d) The order is a state tax order, governed by Article 4 (commencing with Civil Code of Procedure (CCP) Section 706.070). 3)Provides that hospital services rendered to a judgment debtor or his or her family constitute a "common necessary of life" for which the debtor is not entitled to exemption from levy or earnings withholding pursuant to CCP Section 706.051. (J.J. MacIntyre Co. v. Duren (1981) 118 Cal.App.3d Supp. 16.) FISCAL EFFECT : None COMMENTS : According to the author, the working poor in California remain at risk of falling into hunger and homelessness when they are unable to pay medical bills because existing case law effectively prevents a judgment debtor from obtaining an exemption from wage garnishment for that portion of his or her earnings needed for the support of the debtor and his or her family when the underlying debt was incurred for medical care for the debtor or his family. This bill seeks instead to make this exemption from wage garnishment available to a judgment debtor where the underlying debt was incurred for medical care or hospital services. Under this bill, the judgment debtor is not permanently relieved of any portion of the underlying medical debt. Instead, this bill allows the court in medical debt cases to consider the debtor's claim that his or her current financial hardship requires a certain portion of his or her wages to be exempted from wage garnishment for the support of the debtor and his or her family, and allows the court to exercise its existing authority to fashion a partial payment plan or otherwise modify the terms of the earnings withholding order. Under the Wage Garnishment Law, service of an earnings withholding order (EWO) creates a lien upon the earnings of the judgment debtor that are required to be withheld and in the specified amount to be AB 1388 Page 3 withheld pursuant to the order. If no prior hearing has been held with respect to the EWO (or there has been a material change in circumstances since the time of the last prior hearing), then the judgment debtor may claim an exemption from the EWO by filing a claim of exemption and financial statement (both are Judicial Council-approved forms) with the levying officer. On the claim of exemption form, the debtor attests that he or she needs either all or a specified portion of his or her earnings to support himself or herself or his or her family. On the financial statement, the debtor provides a detailed account of his income and expenses that support his or her claim that the court should approve an exemption. (Judicial Council Form WG-006.) Existing law requires a judgment creditor who desires to contest a claim of exemption to file a notice of opposition to the claim of exemption within 10 days after the required notice of claim of exemption has been mailed to the creditor. If the judgment creditor files this notice of opposition with the levying officer within the 10-day period, the judgment creditor is entitled to a hearing on the claim of exemption, as specified. If, however, the levying officer does not receive a notice of opposition to the claim of exemption within the 10-day period, then the EWO will effectively be terminated or modified, depending on the particular claim of exemption made by the judgment debtor. For example, if all of the judgment debtor's earnings were claimed to be exempt, the levying officer shall serve the employer with a notice that the EWO has been terminated. If only a portion of the judgment debtor's earnings was claimed to be exempt, then the levying officer shall serve a modified EWO that reflects the amount of earnings claimed to be exempt Because the EWO is either terminated or modified according to terms proposed by the judgment debtor when the claim of exemption is unopposed, current law provides an incentive to the judgment creditor to file a notice of opposition-thus triggering a hearing where the court shall determine the merit of the judgment debtor's claim of exemption. Not surprisingly, according to the author, creditors oppose the claim of exemption "nearly 100% of the time." According to the author, this bill is needed to address consequences suffered by the working poor that stem from case law interpreting CCP Section 706.051(c). That statute provides that an exemption from wage garnishment for the support of a judgment debtor and his or her family "is not available if...Ýt]he debt was incurred for the AB 1388 Page 4 common necessaries of life (emphasis added) furnished to the judgment debtor or the family of the judgment debtor." According to the Judiciary Committee's research, J.J. MacIntyre Co. v. Duren (1981) 118 Cal.App.3d Supp. 16 is the first case that explicitly holds that medical care or hospital services constitute a "common necessary of life" for the purpose of determining whether the exception (currently articulated by CCP Section 706.051(c)(1)) should apply to disallow the hardship exemption. Legal service attorneys contacted by the Judiciary Committee report that when judgment creditors file a notice of opposition to the claim of exemption in medical debt cases, they typically cite CCP 706.051 (c)(1) and the J.J. MacIntyre decision as the basis for which the claim of exemption should be denied by the court. As recently amended, this bill would preserve the existing exception to the hardship exemption for "common necessaries of life," except that it would exclude hospital services and medical care from statutory construction of that term as a matter of law. In effect, this bill would permit but not require the court to grant a judgment debtor's claim of exemption from wage garnishment in cases where the underlying debt was incurred for medical care or hospital services rendered to the judgment debtor or his or her family. The bill does not affect the right of a debtor to file a claim of exemption, nor of a creditor to file a notice of opposition to the claim to obtain a court hearing to decide the matter. Under this bill, the judgment debtor will still have to submit a detailed financial statement to demonstrate the portion of his or her earnings that he or she contends should be exempt from garnishment for the necessary support of his or her family. The court will still have to determine the merit of the judgment debtor's claim of exemption, but it would allow approval of the claim in cases of medical debt where the court is currently constrained by the J.J. MacIntyre decision. Importantly, this bill does not discharge the underlying debt. Regardless of whether the court approves the claim of exemption or not, the underlying judgment is still valid and can be collected in the future, including interest. Recent scientific research indicates an increasing percentage of bankruptcy filings are associated with illness and medical bills. In a 2009 study published in the American Journal of Medicine, Harvard researchers surveyed a random national sample of 2,314 AB 1388 Page 5 bankruptcy filers in 2007, abstracted their court records, and interviewed 1,032 of them. The researchers found that illness or medical bills contributed to 62.1% of all bankruptcies, and in 92% of these "medical bankruptcies," the debtor had a medical debt over $5,000, or 10% of pretax family income. Supporters of the bill, including several legal service providers for low-income clients, cite this Harvard study in support of the need for this bill, and further contend that the exemption should be available in cases of medical debt because, among other reasons, medical debt is often involuntary or may be caused in large part by the improper actions of others. The California Association of Collectors opposes this bill, contending that it shifts priorities from ensuring that those who take goods or services are responsible for paying back those who extended the services or provided the goods, and instead would allow people to avoid accountability for those purchases. However, as previously noted, this bill does not seek to discharge the underlying judgment debt. Judgment debtors ultimately would still be responsible for paying for what they have purchased, as is true under existing law. The exemption at issue here acts only to protect from garnishment that portion of the judgment debtor's earnings that are necessary to support the debtor and his or her family for the statutory lien period created by the EWO, not to excuse the debt itself. Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334 FN: 0000318