BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1388 (Wieckowski)
As Amended June 10, 2011
Hearing Date: June 28, 2011
Fiscal: No
Urgency: No
BCP
SUBJECT
Earnings Withholding Orders
DESCRIPTION
Existing law provides that the portion of a debtor's earnings
that are necessary for the support of the debtor or his or her
family are exempt from garnishment, but also states that the
exemption is not available if, among other things, the debt was
incurred for the "common necessaries of life" furnished to the
debtor or his or her family.
This bill would strike that exception, thus providing that wages
cannot be levied for debt incurred for the common necessaries of
life if those wages are necessary for the support of the debtor
or his or her family.
This bill would also codify an exception for debt incurred
pursuant to an order or award for the payment of attorney's fees
under specified Family Code sections, and make a related
clarifying change.
BACKGROUND
In California, the Wage Garnishment Law governs the procedures
by which a creditor can seek a withholding of wages from an
employee's paycheck for payment of a debt. Subject to certain
exceptions, withholding of wages is only authorized after the
creditor has received a judgment against the debtor. In order
to garnish wages, an "earnings withholding order" must be served
on the employer, and the employer must give the employee notice
of that order. The notice given to the employee includes
(more)
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Judicial Council Form WG-003, which advises the employee:
1. See an attorney. If you do not know an attorney, check
with the lawyer referral service or the legal aid office in
your county (both are listed in the yellow pages under
"Attorneys").
An attorney may be able to help you make an agreement with
your creditor, or may be able to help you stop your earnings
from being withheld. You may wish to consider bankruptcy or
asking the bankruptcy court to help pay your creditors. These
possibilities may stop your wages from being withheld. An
attorney can help you decide what is best for you. Take your
EWO Ýearnings withholdings order] to the attorney to help you
get the best advice and the fastest help.
2. Try to work out an agreement yourself with your creditor.
Call the creditor or the creditor's attorney, listed on the
EWO. If you make an agreement, the withholding of your wages
will stop or be changed to a smaller amount you agree on. . .
.
3. You can ask for an EXEMPTION. An exemption will protect
more, or maybe even all of your earnings. You can get an
exemption if you need your earnings to support yourself or
your family, but you cannot get an exemption if:
a. You use some of your earnings for luxuries and they
aren't necessarily for support; OR
b. The money you owe is for food, clothing, medical care,
or housing Ý"common necessaries of life"]; OR
c. You owe the debt for past due child support or spousal
support (alimony); OR
d. You owe the debt to a former employee for wages.
In response to concerns about excluding amounts owed for the
"common necessities of life" from the above exemption, this bill
would strike that exception, thus allowing withholding of wages
for those debts only to the extent that those wages are not
necessary for the support of the debtor or his or her family.
CHANGES TO EXISTING LAW
Existing law requires an employer to withhold the amounts
required by an earnings withholding order from all earnings of
the employee payable for any pay period of the employee which
ends during the withholding period, as specified. (Code Civ.
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Proc. Sec. 706.022.)
Existing law provides that the portion of the judgment debtor's
earnings that the debtor proves is necessary for the support of
the debtor, or his or her family, is exempt from levy unless:
the debt was incurred for the common necessaries of life
furnished to the judgment debtor or the family of the judgment
debtor;
the debt was incurred for personal services rendered by an
employee or former employee of the judgment debtor; or
the order is seeks to collect a state tax liability. (Code
Civ. Proc. Sec. 706.051.)
This bill would strike the above exception for common
necessaries of life, and add an exemption for debt incurred
pursuant to an order or award for the payment of attorney's fees
under specified sections of the Family Code.
This bill would provide that the cross-reference to "common
necessaries of life," contained in a section related to the
waiver of court fees and costs, refers to that term as the above
section read prior to January 1, 2012.
COMMENT
1. Stated need for the bill
According to the author:
Amending this antiquated section of law by removing Code
Civ. Proc. § 706.051(c)(1) will merely give individuals the
opportunity to prove to a judge that they can't currently
afford a garnishment or levy. Debtors cannot file Claims of
Exemption from garnishments and levies that stem from
medical bills, food, shelter or other common necessities of
life. This leads to the perverse situation in which someone
who runs up a huge gambling debt at a casino can escape
having his wages garnished, but a debtor taken to the ER
after a car accident will lose 25% of her wages till the
medical bill is paid.
For low-income workers, wage garnishments can quickly turn
into homelessness and hunger. This is especially cruel
because medical debts are considered a common necessity of
life and are often the least voluntary of debts: no one
chooses to fall ill. With budget cuts to Medi-Cal, Healthy
Families, Indigent Care, and nearly all other health-related
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programs, many more of the working poor are going to have
medical bills, especially emergency room bills that they
can't pay. Eliminating § 706.051(c)(1) will not erase
anyone's debt for the common necessities of life. It will
simply provide for more reasonable repayment options to be
negotiated, or for repayment to be delayed until it no
longer means disaster for the debtor's family.
The East Bay Community Law Center, in support, further
asserts:
ÝI]t makes no sense to permit debt collectors to garnish
poor people's wages and deny them access to food and shelter
until the debtor can manage to explain to the sheriff or
court what has happened. Section 706.051 of the Code of
Civil Procedure provides that a debtor who can establish
that the funds seized by a debt collector are "necessary for
the support" of her family can get those funds back. But
the law as currently written contains an odd exception
allowing the debt collector to take the money if the debt
was incurred "for the common necessaries of life." . . . AB
1388 would correct this aberration and simply provide that
debt collectors cannot take away the very wages that allow
poor people to survive.
2. Common necessities of life
Under existing law, the portion of a debtor's earnings that can
be proven to be necessary for the support of the debtor (or the
debtor's family) is exempt from garnishment. That provision
does not apply in four circumstances: (1) if the debt was
incurred for the common necessities of life; (2) if the debt was
incurred for personal services rendered by an employee; (3) if
the order is for child or spousal support; or (4) if the order
seeks to collect state taxes. In response to concerns about the
exception for "common necessaries of life," this bill would
strike that provision, thus, allowing the creditor to garnish
wages for those debts only to the extent that the earnings are
not necessary for supporting the debtor or their family. Thus,
earnings necessary for support would not be subject to
garnishment for debts incurred for common necessaries of live.
a. Historic rationale for exception may no longer apply
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California's First District Court of Appeal previously noted,
with regards to allowing garnishment for the common necessaries
of life even where the wages are needed to support a family,
that: "There is no legislative declaration of one purpose of
the code section. But it seems reasonably clear that the purpose
is to assure to the poor acquisition of the necessities of life
by giving creditors who advance such supplies a preference over
those who sell the nonessentials upon credit." (Thayer v.
Madigan (1975) 52 Cal. App. 3d 16, 20.) At an earlier time in
our society, the exception for "common necessaries of life"
could have acted to ensure that individuals with little money
were able to buy necessary items on credit extended by the
merchant- for example, the corner market may allow a poor family
to purchase groceries on store credit with the knowledge that
the store could collect that money by garnishment. In today's
modern society of credit cards, those same personal extensions
of credit are generally no longer used for buying necessaries of
life and raise a policy question regarding whether the current
exception is still appropriate. The East Bay Community Law
Center asserts that under existing law, "poor people can protect
their pay from debt collectors if they use it only for food and
shelter - but not if the debt was for . . . food and shelter."
The following two examples illustrate the issue: A family that
is struggling to make ends meet elects to purchase groceries on
a credit card, later defaults on that credit card and a creditor
is granted a judgment for that debt. If the debtor, upon being
served with notice of the earnings withholding order, proves
that a portion of his or her wages are necessary for the support
of the family, the creditor can still garnish the debtor's wages
since the debt was incurred for food (arguably a "common
necessary of life"). Alternatively, if the debtor had instead
purchased a Hawaiian vacation and a pair of jet skis on credit
(both of which are arguably not common necessaries of life), the
debtor could protect his or her wages from garnishment to the
extent that those wages are required for the support of the
debtor's family. Although allowing garnishment of wages needed
to support one's family in order to repay a debt incurred for
the common necessaries of life could have historically promoted
the extension of credit by individual merchants for those items,
the use of credit cards (which can be used to purchase any type
of item) acts to undercut the justification for the exemption.
Those cards are extended for the purchase of any item, thus
providing the credit card company with no assurance that wages
needed for the support of the individual's family can be
garnished. Similarly, an article by James H. Suddeth, III in
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the Summer, 1999 issue of the South Carolina Law Review noted:
"Common necessaries" clauses could discourage debtors from
claiming exemptions. Debtors may decide to forfeit their
exemptions rather than hassle with litigating the issue of
whether they incurred debts for "common necessaries." In
addition, public policy argues against these clauses.
According to opponents of "common necessaries" clauses, "the
statute puts the prudent (or poor) family which buys only
essentials into a worse position than the family that buys
nonessential items on credit." Legislatures must avoid
"common necessaries" clauses and similar exemption clauses
that defeat the underlying goal of exemptions, which is to
reduce the harsh effects of wage garnishment on the debtor.
(50 S.C. L. Rev. 525, 535-536) (citations omitted.)
Consistent with that recommendation, this bill would strike the
exception for common necessaries of life from California's wage
garnishment law, thus, allowing a debtor's wages to be taken to
repay those debts only to the extent that the money is not
needed for the support of the debtor or his or her family.
b. Debts placed under the exception
Supporters of AB 1388 contend that while other debts may fall
under the definition of "common necessaries of life," the
overwhelming majority of creditors who claim the exception are
seeking to collect on medical debts. In applying the term to
those types of debts, the court in J. J. MacIntyre Co. v. Duren
(1981) 118 Cal. App. 3d Supp. 16 held:
The term "common necessaries of life," while strictly
construed by cases interpreting the former code provisions,
means essentials commonly required by all persons for the
sustenance of life, whatever their employment status and
includes medical care. ÝAccordingly,] the trial court erred
in failing to recognize that plaintiff's judgment was based
on a common necessary of life, a debt for hospital services
to defendant or his family. (Id. at 19) (citations
omitted).
Other examples provided by supporters include landlords seeking
to collect for unpaid rent, and credit card companies and debt
buyers asserting that credit charges for food, pharmaceuticals,
and even mortgage payments were for the common necessaries of
life. As noted above, given that credit cards operate in a
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significantly different fashion than a corner butcher extending
credit, the current exception from the prohibition against
garnishing wages needed for support creates an incentive for
those who will default on their credit cards to purchase
frivolous items as opposed to items needed to live.
With respect to medical debt that was arguably incurred by those
with insufficient or no medical insurance, garnishment of wages
needed to support a debtor's family would appear to impose even
greater hardships on uninsured, sick, and elderly individuals.
A June 4, 2009 New York Times article entitled Medical Bills
Cause Most Bankruptcies reported:
Nearly two out of three bankruptcies stem from medical
bills, and even people with health insurance face financial
disaster if they experience a serious illness, a new study
shows. The study data, published . . . in The American
Journal of Medicine, likely understate the full scope of the
problem because the data were collected before the current
economic crisis. In 2007, medical problems contributed to
62.1 percent of all bankruptcies. Between 2001 and 2007,
the proportion of all bankruptcies attributable to medical
problems rose by about 50 percent.
It should also be noted that deleting the exception for common
necessaries of life would not make those debts unenforceable, or
even stop the garnishment of the portion of wages not needed for
support of the debtor and his or her family. Instead, the
deletion would ensure that wages that can be proven to be
necessary for support are exempt from levy. The Consumer
Attorneys of California, in support, further assert:
AB 1388 does not permanently prohibit a . . . debt collector
from recovering for expenses they have incurred. This bill
simply provides courts the opportunity to consider the
debtor's claim that his current financial hardship requires
a certain portion of his wages to be exempted from wage
garnishment. In its consideration of the debtor's claims,
the court is free to fashion a partial payment plan or
otherwise modify the terms of the earnings withholding
order. Even if the court grants the Claim of Exemption in
full, the underlying judgment is still good and can be
collected, with interest, in the future.
3. Preserving orders or awards for payment of attorney's fees
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In striking the exception that allows garnishment of wages
needed for support in order to repay debts incurred for the
common necessaries of life, this bill would preserve the ability
to garnish those wages pursuant to an order or award for the
payment of attorney's fees under three family code sections
relating to dissolution of marriage, child custody, and child
and spousal support. By preserving those exceptions from the
general rule that wages needed for support are exempt from levy,
this provision seeks to preserve the court's holding in In re
Marriage of Pallesi (1977) 73 Cal. App. 3d 424.
In that case, the Court of Appeal, Fifth Appellate District held
that the "rendering of legal services and the advancement of
costs of litigation giving rise to a pendente lite award to any
attorney in a marriage dissolution action clearly qualify as
'common necessaries of life' for the benefit of the indigent
spouse thereby giving the attorney the right to enforce the
award by writ of execution on the other spouse's earnings
against a claim of exemption of those earnings." (Id. at
427-28.) Even though the parties to the dissolution action
reconciled before the writ of execution was levied on the
husband's earnings, the court held:
ÝT]here is a strong public policy favoring the payment of
court-approved attorney's fees and costs. If by an act of
reconciliation a debtor spouse can escape liability for
payment of the fees and costs, it would become difficult for
indigent spouses to obtain legal counsel in marital
dissolution proceedings. Furthermore, if a pendente lite
order for attorney's fees and costs is not enforceable by
execution against the earnings of the debtor spouse after
reconciliation, counsel in dissolution proceedings will be
encouraged to levy wage garnishments immediately upon
obtaining an unconditional order for fees and costs,
contrary to the strong public policy favoring
reconciliation. (Id.)
By preserving the ability to garnish wages for payment of
court-ordered family law attorney fees, even when those wages
are needed to support the debtor's family, this bill would
preserve the impact of the Pallesi case.
4. Opposition's concerns
USCB, Inc., in opposition, contends that this bill would
"further frustrate the ability of creditors to collect debts
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which are lawfully owed," and that:
In this age of plastic, by expanding the exemption to cover
this type of debt, debtors will be able to increase the
likelihood that they will escape having to pay debts they
lawfully owe. As a result, creditors will be forced to
charge higher interest rates to those consumers who do pay
their debts.
The California Association of Collectors notes that the "policy
rationale for excluding common necessaries of life from the
claim of exemption process was to protect consumers from
creditors refusing to extend credit for those necessaries," and
contends that the "net effect of taking medical care and
hospital services out of the definition will be to encourage
health care providers to demand payment prior to rendering of
services. Consumers will be forced to pay using bank credit
cards with higher interest rates and penalties."
Despite those contentions, it should be noted that this bill
only prevents the levy of wages for a "common necessary of life"
if the debtor proves that those wages are needed to support the
debtor or his or her family. If those wages are not necessary
for support, they can be garnished. With regards to the
arguments regarding medical debt, the author argues:
First, all this bill will do is put medical debt on an
equal footing with other forms of unsecured debt, by
ensuring that medical debts do not force the working poor
into hunger or homelessness. These debts will still be
outstanding and accruing interest until debtors can pay
them.
Second, it is well-documented that uninsured patients pay
much higher rates for medical care than the insured. It is
doubly cruel to mandate that the working poor be stripped
of 25% of their wages in order to pay bills much higher
than those faced by the insured.
Third, remember that medical debt is largely involuntary.
No one chooses to fall ill or be seriously injured. It is
unlikely that debtors are seeking to avoid bills for
elective care, such as plastic surgery. Most doctors are
prudent enough not to extend elective services to people
making minimum wage, i.e., the sorts of people a court
would find eligible for a Claim of Exemption. These are
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largely bills for emergency services. Should getting into
a car accident inevitably mean that your children go
without food two years later?
5. Preserving case law regarding "common necessaries of life"
Existing Government Code Section 68632 provides that "common
necessaries of life," as used in the Article 6 of Chapter 2 of
Title 8 of the Government Code, shall be interpreted consistent
with the use of the term in the Code of Civil Procedure (CCP)
section amended by this bill. In order to preserve the case
law regarding the definition of that term under Section 706.051
of the CCP, this bill would amend Section 68632 of the
Government Code to clarify that the reference to "common
necessaries of life" refers to CCP 706.051 as it read prior to
January 1, 2012. That clarification seeks to ensure that this
bill will have no substantive impact on the interpretation of
the Government Code sections which also reference the "common
necessaries of life."
Support : California Church IMPACT; California Immigrant Policy
Center; California National Organization for Women; Consumer
Attorneys of California; East Bay Community Law Center; Los
Angeles Center for Law and Justice
Opposition : California Association of Collectors; USCB, Inc.
HISTORY
Source : Western Center on Law & Poverty
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Floor (Ayes 49, Noes 26)
Assembly Judiciary Committee (Ayes 7, Noes 2)
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