BILL ANALYSIS Ó
AB 1388
Page 1
Date of Hearing: September 6, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1388 (Wieckowski) - As Amended: June 10, 2011
FOR CONCURRENCE
SUBJECT : EARNINGS WITHHOLDING ORDERS
KEY ISSUE : AT A COURT HEARING TO DETERMINE A JUDGMENT DEBTOR'S
CLAIM OF EXEMPTION FROM WAGE GARNISHMENT PURSUANT TO A VALID
EARNINGS WITHHOLDING ORDER, SHOULD THE COURT BE ABLE TO GRANT
THE EXEMPTION IN CASES WHERE THE UNDERLYING DEBT WAS INCURRED
FOR MEDICAL CARE OR HOSPITAL SERVICES RENDERED TO THE JUDGMENT
DEBTOR OR HIS FAMILY?
SYNOPSIS
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 earnings
needed for the support of the debtor and his family (also known
as a "hardship exemption") when the underlying debt was incurred
for medical care for the debtor or his family. This result
stems from the holding of J.J. MacIntyre Co. v. Duren (1981) 118
Cal.App.3d Supp. 16, where the court expressly held that medical
care or hospital services constitute a "common necessary of
life" under which CCP Section 706.051(c)(1) requires denial of a
claim of hardship exemption by a judgment debtor having such
medical debt.
This bill seeks to make the hardship exemption from wage
garnishment available to a judgment debtor where the underlying
debt was incurred for medical care or hospital services. In
order to avoid unintended consequences in the family law
arena--unrelated to medical debt--that may arise from deletion
of the "common necessaries of life" clause, the bill prudently
codifies an exception to the hardship exemption for orders or
awards for attorney's fees in certain family law proceedings, as
specified. 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
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to consider the debtor's claim that his current financial
hardship requires a certain portion of his wages to be exempted
from wage garnishment for the support of the debtor and his
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. Supporters of the bill,
including several legal service providers, contend that the bill
simply levels the playing field by putting medical debt on equal
footing with other forms of unsecured debt, and that making the
hardship exemption available in cases of medical debt is
appropriate because it is often incurred involuntarily or may be
caused in large part by the improper actions of others. The
bill is opposed by the California Association of Collectors, who
contends that the bill would create a vehicle for some consumers
to avoid paying their just debts while adding greater burdens
for those who do pay the debts they owe.
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:
1)Deletes a statutory exception for "common necessaries of
life," thereby making 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 exempt from wage garnishment
if the underlying debt was incurred for the "common
necessaries of life" furnished to the judgment debtor or his
family.
2)Codifies an exception for specified orders or awards for
attorney's fees in certain family law proceedings, thereby
preserving existing authority, pursuant to case law, to
garnish a judgment debtor's wages pursuant to an order or
award for the payment of attorney's fees in specified cases
relating to divorce, child custody, and child and spousal
support.
3)Clarifies that a statutory reference to "common necessaries of
life" in the Government Code shall be interpreted consistently
with the use of that term as it read in Code of Civil
Procedure Section 706.051 prior to January 1, 2012.
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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. (Code of Civil Procedure Section
706.051(b).)
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 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). (Code of Civil Procedure Section 706.051(c).)
3)Establishes 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.)
4)Establishes 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
qualify as "common necessaries of life" for the benefit of the
indigent spouse, thereby allowing enforcement of the award by
a writ of execution on the other spouse's earnings against a
claim of exemption of those earnings. (In re Marriage of
Pallesi (1977) 73 Cal. App. 3d 424.)
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5)Requires a court to grant an applicant permission to proceed
without paying court fees and costs because of his or her
financial condition if the applicant, as individually
determined by the court, cannot pay court fees without using
moneys that normally would pay for the common necessaries of
life for the applicant and the applicant's family. Provides
that "common necessaries of life," as used here, shall be
interpreted consistently with the use of that term in
paragraph (1) of subdivision (c) of Section 706.051 of the
Code of Civil Procedure. (Government Code Section 68632(c).)
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 earnings needed for the support of the debtor and his family
when the underlying debt was incurred for medical care for the
debtor or his family. To address this, the bill seeks to permit
judgment debtors to claim the exemption from wage garnishment in
cases 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 current financial
hardship requires a certain portion of his wages to be exempted
from wage garnishment for the support of the debtor and his
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.
Claiming an Exemption from Wage Garnishment: A Procedural
Background . Under the Wage Garnishment Law (Chapter 5 of
Division 2 of Title 9 of Part 2 of the Code of Civil Procedure),
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 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 (forms both adopted by the
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Judicial Council) with the levying officer. On the claim of
exemption form, the debtor attests that he needs either all or a
specified portion of his earnings to support himself or his
family. On the financial statement, the debtor provides a
detailed account of his income and expenses that support his
claim that the court should approve an exemption.
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."
Stated Need for the Bill. According to the author, this bill is
needed to address consequences suffered by the working poor that
stem from case law interpreting Section 706.051(c) of the Code
of Civil Procedure. That statute provides that an exemption
from wage garnishment for the support of a judgment debtor and
his family "is not available if...Ýt]he debt was incurred for
the common necessaries of life (emphasis added) furnished to the
judgment debtor or the family of the judgment debtor." The
author states:
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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
Ýemergency room] 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 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.
Statutory Interpretation of Section 706.051 and "Common
Necessaries of Life." Subdivision (b) of Section 706.051
continues the hardship exemption from wage garnishment that has
existed, in one form or another, since at least 1933 and
possibly much earlier. (See Former Section 690.6 added by
Stats. 1935 c.723, derived from Former Section 690, enacted in
1872.) The basic theory of providing an exemption of wages
necessary for use of a judgment debtor's family is that the
debtor and his family, regardless of the debtor's improvidence,
will retain enough money to maintain a basic standard of living
in order that the debtor may have a fair chance to remain a
productive member of the community. Perfection Paint Products
v. Johnson (1958, Cal App 1st Dist) 164 Cal App 2d 739. In
addition, statutes exempting property from execution should be
fairly and liberally construed and, as far as practicable,
beneficially to the debtor. Van Lue v. Wahrlich-Cornett Co.
(1910) 12 Cal App 749.
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In examining the legislative intent behind the exemption, the
court in White v. Gobey (1933) held that "necessities, then,
used for the very maintenance of the debtor's family, for food,
clothing and the like, are what the legislature meant to make
special provision for." 130 Cal. App. Supp. 789, 792.
Subdivision (c) specifies exceptions to the hardship
exemption-cases where the exemption is not allowed even though
the judgment debtor can show the necessity for exempting all or
part of his earnings. The first such exception provides that an
exemption from wage garnishment for the support of a judgment
debtor and his family is not available if "the debt was incurred
for the common necessaries of life furnished to the judgment
debtor or the family of the judgment debtor." In Los Angeles
Finance Co. v. Flores (Cal. App. Dep't Super. Ct. 1952), the
court, in ascertaining legislative intent behind the exception
for "common necessaries of life" concluded that "obviously, the
Legislature, cognizant of the fact that to the great majority of
persons supporting a family the earnings of the past 30 days are
required for such basic things as food, heat, shelter, etc.
(common to all), desired to make sure that these earnings shall
not be taken to pay for something less basic." 110 Cal. App. 2d
Supp. 850, 856.
According to the 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
Section 706.051(c)(1)) should apply to disallow the hardship
exemption. In J.J. MacIntyre Co., the Appellate Department of
the Superior Court of Los Angeles County held that the defendant
was not entitled to an earning exemption because "the underlying
debt was an assigned bill for hospital services rendered to the
defendant or his family . . . Ýwhich] is a common necessary of
life." 118 Cal.App.3d Supp. 16, 19. The court also stated "the
term 'common necessaries of life' . . . means essentials
commonly required by all persons for the sustenance of life,
whatever their employment status and includes medical care."
Id. at 19.
Legal service attorneys contacted by the Committee report that
when judgment creditors file a notice of opposition to the claim
of exemption in medical debt cases, they typically cite CCP
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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.
This bill does not discharge the underlying medical debt, but
allows the court to consider an exemption in medical debt cases.
In effect, by making the claim of exemption available in cases
of medical debt, this bill operates simply to give judgment
debtors the opportunity to prove that they cannot currently
afford a garnishment or levy for medical debt. The court would
be allowed but not required 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 family. The bill does not affect
the right of the 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
earnings that he contends should be exempt from garnishment for
the necessary support of his 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. This bill does not discharge the
underlying debt; 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 amendments narrow the scope of the bill to preserve
existing family law provisions unrelated to medical debt. On
June 10, 2011, this bill was amended in the Senate to strike the
statutory exception for "common necessaries of life" from
Section 706.051. In order to avoid unintended consequences in
the family law arena--unrelated to medical debt--that may have
arisen from deletion of that provision, the bill was also
amended, quite prudently, to codify the status quo exception to
the hardship exemption for orders or awards for attorney's fees
in certain family law proceedings, as specified. As a result,
the June 10 amendments effectively preserve the existing ability
of a judgment creditor, pursuant to case law, to garnish a
judgment debtor's wages pursuant to an order or award for the
payment of attorney's fees in certain cases relating to divorce
(Family Code Section 2030), child custody (Family Code Section
3121), and child and spousal support (Family Code Section 3357).
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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 court's holding in In re Marriage of Pallesi (1977)
73 Cal. App. 3d 424. In that case, the Court of Appeal (5th
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.)
The Court further explained the public policy rationale for its
holding:
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. at 427-28.)
In short, the Senate amendments narrow, not broaden, the scope
of the bill to ensure that its effect is only with respect to
wage garnishment in medical debt cases, and to ensure it does
not upset existing law or public policy unrelated to medical
debt. The bill effectively preserves the status quo with
respect to wage garnishment and court orders for attorney fees
in certain family law matters, and does not create new rights or
means of enforcing these orders.
This bill also preserves case law with respect to court
evaluation of fee waiver applications, unrelated to medical
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debt. 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 Code of Civil
Procedure Section 706.051, a code section amended by this bill.
Section 68632(c) provides courts discretionary authority to
grant a fee waiver for persons who are not on public assistance,
as specified. In order to preserve the case law regarding the
definition of that term under CCP Section 706.051, this bill
would amend Govt. Code Section 68632 to clarify that the
reference to "common necessaries of life" refers to CCP Section
706.051 as it read prior to January 1, 2012, the effective date
that section would be changed if this bill is chaptered into
law. This clarification seeks to ensure that this bill will
preserve existing interpretation of the term "common necessaries
of life" under the Government Code for the purpose of a court's
evaluation of fee waiver applications. Without this clarifying
language, an unintended consequence may be the elimination of
guidance for how hearing officers should decide whether to grant
fee waivers to low-income persons in certain civil and family
law matters.
Studies indicate an increasing percentage of bankruptcy filings
are associated with illness and medical bills and that medical
debt is largely involuntary. In a 2009 study published in the
American Journal of Medicine, Harvard researchers surveyed a
random national sample of 2314 bankruptcy filers in 2007,
abstracted their court records, and interviewed 1032 of them.
Debtors were designated as "medically bankrupt" if they: (1)
cited illness or medical bills as a specific reason for
bankruptcy; OR (2) reported uncovered medical bills greater than
$1000 in the past two years; OR (3) lost at least 2 weeks of
work-related income due to illness or injury; OR (4) mortgaged a
home to pay medical bills. Using these criteria, 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 $5000, or 10%
of pretax family income.
In comparing this data with the results from a previous 2001
study employing identical methodology, the researchers were able
to determine that the share of bankruptcies attributable to
medical problems rose by 49.6% from 2001 to 2007, and that after
controlling for demographic factors, the odds that a bankruptcy
had a medical cause was 2.38 fold higher in 2007 than in 2001.
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Telephone interviews of the 639 identified patients whose
illness contributed to bankruptcy revealed the severity of job
problems caused by illness. The researchers found that in 37.9%
of patients' families, someone had lost or quit a job because of
the medical event; 24.4% had been fired, and only 37.1%
subsequently regained employment. (Himmelstein D., Thorne D.,
et al. Medical Bankruptcy in the United States, 2007: Results
of a National Study. American Journal of Medicine, Vol. 122,
No. 8, August 2009.)
In 2004, the Health Consumer Alliance of California (HCA)
published a study titled "Sick and in Debt" that documents cases
of how consumers got into medical debt at no fault of their own.
The HCA report concludes that medical debt is largely
involuntary and not caused by financial irresponsibility. The
report's executive summary states:
The public perception is that medical debt happens
primarily to consumers who are financially
irresponsible. HCA data brings to light many improper,
and sometimes illegal, practices by state
administrators and providers that cause medical debt to
fall on low-income consumers. The medical debt of HCA
consumers is caused in large part by the improper
actions of others.
Medical debt dashes the future hopes and dreams of
low-income individuals. An expensive, unplanned trip to
the hospital can mean higher education is postponed or
never pursued. A credit record with outstanding debt
effectively prevents many families from realizing the
dream of home ownership. Outstanding debt means that
precious family resources are directed to debt
servicing, not to other family needs.
ARGUMENTS IN SUPPORT : This bill is supported by a number of
legal service providers who report serving low-income families
who often face wage garnishments. These supporters, including
the Western Center on Law and Poverty (WCLP), California Rural
Legal Assistance Foundation, and East Bay Community Law Center,
contend generally that extending the protection of the hardship
exemption to medical debt cases will help ensure that working
Californians in those situations can exempt from wage
garnishment the basic income necessary to support their families
and avoid being forced into hunger or homelessness. For
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example, Western Center writes in support:
Under AB 1388 these harsh outcomes on families can be
partially limited. While families would still be
responsible for debt they owe (even if unfairly
incurred), they could not have their income taken by a
medical debt collector. Instead the debt collector will
have to negotiate with the family to establish a
repayment method. This gives the family the final
decision on how their earnings are to be spent and to
ensure that families can take care of the basic
necessities of life.
The Consumer Attorneys of California (CAOC) also writes in
support, stating that the bill "protects California's working
poor by putting medical debt on equal footing with other forms
of unsecured debt." CAOC further states, "Understanding that
exemptions are available to debtors in other situations, it is
cruel and unjustifiable that our law disfavors those who fall
into (medical) debt as a result of unforeseeable, inescapable
health emergencies."
ARGUMENTS IN OPPOSITION : The California Association of
Collectors (CAC) opposes this bill for a variety of reasons. In
their opposition letter, CAC states:
The entire public 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. 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.
In addition, this bill would create an unintended,
unjust and negative impact on the largest number of
consumers that pay without the need for legal action
and it will force the medical providers to request
payment from all consumers up front. . . This bill
would create a vehicle for those consumers to avoid
paying their just debts while adding greater burdens
for those who pay their just and owing medical debts. .
. AB 1388 seeks a back-door approach, post judgment, to
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try to avoid repayment of legal debts already incurred.
It takes away the most effective legal tool to
implement repayment where a court has already
established the legal obligation for services rendered
where there is no dispute.
USCB, Inc., which describes itself as an "accounts receivable
management company specializing in medical receivable services,"
contends that this bill would "further frustrate the ability of
creditors to collect debts which are lawfully owed." USCB also
asserts that "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."
With respect to the accountability of debtors, despite these
contentions it should be noted that this bill does not act to
discharge any underlying judgment debt, medical or otherwise.
Ultimately, judgment debtors would still be responsible for
paying for services rendered, as is true under existing law.
The hardship exemption, which would be made available to medical
debt cases, protects from garnishment only that portion of the
judgment debtor's earnings that are necessary to support the
debtor and his family for the statutory lien period created by
the earnings withholding order, but does not excuse the debt
itself.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
(AFSCME)
California Church Impact
California Employment Lawyers Association (CELA)
California Labor Federation
California National Organization of Women
California Rural Legal Assistance Foundation
California School Employees Association
Consumer Attorneys of California
East Bay Community Law Center
Los Angeles Center for Law and Justice
Western Center on Law and Poverty
Opposition
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California Association of Collectors
USCB, Inc.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334