BILL ANALYSIS                                                                                                                                                                                                    ”






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          AB 1775 (Wieckowski)
          As Amended April 17, 2012
          Hearing Date: June 19, 2012
          Fiscal: No
          Urgency: No
          TW   
                    

                                        SUBJECT
                                           
                         Wage Garnishment:  Exempt Earnings

                                      DESCRIPTION  

          This bill would raise the minimum floor of a judgment debtor's 
          wages that are exempt from garnishment from 30 times the federal 
          minimum hourly wage to 40 times the California minimum hourly 
          wage.

          This bill would become operative on July 1, 2013.

                                      BACKGROUND  

          In 1978, the Legislature enacted the Employee's Earnings 
          Protection Law, which was subsequently renamed the Wage 
          Garnishment Law in 1983 when the wage garnishment provisions 
          were revised and recast.  Under the Wage Garnishment Law, a 
          judgment creditor can seek garnishment of a judgment debtor's 
          wages to satisfy a court judgment.  

          The Wage Garnishment Law conforms to the federal wage 
          garnishment law and provides that a wage garnishment may not 
          exceed 25 percent of a judgment debtor's earnings for that week 
          or the amount by which the disposable earnings for that week 
          exceed 30 times the federal minimum hourly wage, as specified.  
          (Code Civ. Proc. Sec. 706.050.)  This provision has not been 
          modified since it was enacted in 1983.

          This bill, sponsored by the Western Center on Law & Poverty, 
          would raise the minimum floor of wages exempt from garnishment 
          from 30 times the federal minimum hourly wage to 40 times the 
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          California minimum hourly wage. 

                                CHANGES TO EXISTING LAW
           
           Existing law  , the Wage Garnishment Law, establishes procedures 
          regarding the garnishment of a judgment debtor's wages.  (Code 
          Civ. Proc. Sec. 706.010 et seq.)  
           Existing law  provides an exemption of the amount of earnings of 
          a judgment debtor that may be garnished to the amount provided 
          under federal law.  (Code Civ. Proc. Sec. 706.050.)
           
          Existing law  provides that "earnings" means compensation payable 
          by an employer to an employee for personal services performed by 
          such employee, whether denominated as wages, salary, commission, 
          bonus, or otherwise.  (Code Civ. Proc. Sec. 706.011(a).)  
          Existing law does not define "disposable earnings."
           
          Existing federal law  provides that "earnings" means compensation 
          paid or payable for personal services, whether denominated as 
          wages, salary, commission, bonus, or otherwise, and includes 
          periodic payments pursuant to a pension or retirement program.  
          (15 U.S.C.S. Sec. 1672(a).)  

          Existing federal law  provides that "disposable earnings" means 
          that part of an employee's earnings remaining after the 
          deduction from those earnings of any amounts required by law to 
          be withheld.  (15 U.S.C.S. Sec. 1672(b).)  

          Existing federal law  restricts the amount of disposable earnings 
          of a judgment debtor that may be garnished for any workweek to 
          25 percent of the judgment debtor's disposable earnings for that 
          week or the amount by which the judgment debtor's disposable 
          earnings for that week exceeds 30 times the federal minimum 
          hourly wage, as prescribed by the Fair Labor Standards Act of 
          1938, in effect at the time the earnings are payable, whichever 
          is less.  (15 U.S.C.S. Sec. 1673.)

           Existing law  exempts from garnishment the portion of the 
          judgment debtor's wages proven to be necessary for the support 
          of the judgment debtor or the judgment debtor's family supported 
          in whole or in part by the judgment debtor.  Existing law 
          provides that this exemption is not available for debt incurred 
          relating to the payment of attorney's fees under the Family 
          Code, as specified, for debt incurred for personal services 
          rendered by an employee or former employee of the judgment 
          debtor, for debt relating to a child support order, as 
                                                                      



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          specified, or for debt relating to a state tax order.  (Code 
          Civ. Proc. Sec. 706.051.)

           This bill  would provide that "disposable earnings" means the 
          portion of an individual's earnings that remains after deducting 
          all amounts required to be withheld by law. 

           This bill  would restrict the amount of garnishment of a judgment 
          debtor's disposable earnings for any workweek to the lesser of 
          25 percent of the individual's disposable earnings for that week 
          or the amount by which the individual's disposable earnings for 
          that week exceed 40 times the state minimum hourly wage in 
          effect at the time the earnings are payable. 

           This bill  would provide multipliers to determine the maximum 
          amount of disposable earnings subject to garnishment for daily, 
          biweekly, semimonthly, and monthly pay periods. 

           This bill  would provide a delayed operative date of July 1, 
          2013, so that the Judicial Council of California can revise the 
          methods of computation provided in wage garnishment instructions 
          to employers.

                                        COMMENT
           
          1.  Stated need for the bill  
          
          The author writes:
          
            When someone falls behind on a consumer debt, the judgment 
            creditor may, and nearly always will, garnish the wages of a 
            worker until the debt (plus accruing interest) is satisfied.  
            But existing California law only protects $217.50 per week 
            from wage garnishment.  The working poor, who live 
            paycheck-to-paycheck, simply cannot make ends meet on this 
            miniscule amount.  When their wages are garnished, other 
            essentials - rent, food, medicine - become unaffordable.  They 
            lose their homes, their children go hungry, and they and their 
            families fall ill, or else they fall into further debt to 
            credit card companies or predatory lenders.  All of these 
            problems have been exacerbated by the financial crisis, which 
            has stripped families of their meager assets and decimated the 
            safety net.  The alternatives - bankruptcy or a claim of 
            exemption - are problematic.  Bankruptcy may ensure that no 
            creditor is repaid.  Obtaining a Claim of Exemption can take 
            months.
                                                                      



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          The Western Center on Law & Poverty, the sponsor of this bill, 
          writes:
            
            Wage garnishments have enormous impacts on low income 
            families.  In one case from a Central Valley legal service 
            program, a cannery worker had his wages garnished due to 
            unpaid medical bills.  Once his wages were garnished, he 
            couldn't pay his auto loan.  So his car was repossessed.  And 
            without a car, he couldn't get to work and lost his job.  This 
            should not happen.

            We also know that there is serious concern about the practices 
            of debt collection companies, particularly third party debt 
            collectors.  One legal service program found that the statute 
            of limitations had expired in half of the debt cases of its 
            clients.  We also know that many cases filed have inaccurate 
            payment histories, incorrect social security numbers and 
            misidentifications.  Lastly, most wage garnishments are 
            derived from default judgments in which the defendant did not 
            appear or did not have adequate notice.

            Under current law debt collectors can garnish the wage of 
            families who have disposable incomes above $217 a week or $942 
            a month.  A salary at this level represents just 49 ›percent] 
            of the federal poverty level for a family of four.  In most 
            communities in California this income level is insufficient to 
            pay the Fair Market Rent for a two bedroom apartment.  When 
            food, utilities, insurance, clothing and other necessities are 
            added in it is obvious that families at this income level do 
            not have any disposable income to be garnished.

          2.  Increasing amount of disposable earnings exempt from 
            garnishment  

          This bill would increase the amount of a judgment debtor's 
          disposable earnings that is exempt from garnishment to 40 times 
          the state minimum wage rate.  Existing law restricts the amount 
          of a judgment debtor's earnings that may be garnished to the 
          amount provided under federal law.  (Code Civ. Proc. Sec. 
          706.050.)  Existing federal law restricts the amount of 
          disposable earnings of a judgment debtor that may be garnished 
          for any workweek to 25 percent of the judgment debtor's 
          disposable earnings for that week or the amount by which the 
          judgment debtor's disposable earnings for that week exceed 30 
          times the federal minimum hourly wage, whichever is less.  (15 
                                                                      



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          U.S.C.S. Sec. 1673.)

          The author argues that, under existing law, judgment debtors 
          only have garnishment protection of $217.50 (currently 30 x 
          $7.25) per week, which is not enough for the judgment debtor to 
          pay for rent, food, and medicine.  This bill would provide 
          greater consumer protection from a judgment creditor by raising 
          the wage garnishment protection to $320 per week.  This amount 
          is based on California's minimum wage of $8.00 per hour instead 
          of the lower federal minimum wage of $7.25 per hour.  This bill 
          would not change garnishment laws for unpaid spousal or child 
          support.

          Case law has held that, if the federal garnishment exemption 
          percentage differs from the state garnishment exemption 
          percentage, "whichever is more restrictive and results in 
          smaller garnishment is one which must be applied in any given 
          situation.  (Willhite v. Willhite (1976, Okla.) 546 P.2d 612, 
          616.)  Federal law provides for a garnishment exemption of 30 
          times the federal minimum hourly wage.  This bill, by providing 
          for a garnishment exemption of 40 times the California minimum 
          hourly wage, would provide more restriction on garnished wages 
          and would result in a smaller amount of disposable earnings that 
          may be garnished.

          The author points out that many other states have greater 
          protection for judgment debtors and provide varying exemptions 
          from garnishment so that the judgment debtors do not go into 
          greater debt trying to sustain themselves and their families 
          while paying for the judgment.  Pennsylvania, Texas, North 
          Carolina, and South Carolina do not allow wage garnishment for 
          consumer debts.  The following states permit varying levels of 
          garnishment, which are lower than California:  New York permits 
          only 10 percent garnishment; Delaware, 15 percent; and Illinois, 
          15 percent.  Illinois protects earnings up to 45 times the 
          federal minimum wage, which amounts to $326.00 per week 
          protected from garnishment.  Given the number of states which 
          protect higher levels of income from garnishment, the 
          protections provided in this bill would not be unprecedented.

          Although California currently is not the leader in providing 
          disposable earnings exemptions from wage garnishment, California 
          is the fifth most expensive state in which to live and is the 
          location of four of the top ten most expensive cities in the 
          United States.  The Public Law Center, a supporter of this bill, 
          states that a family of four living on the existing exempted 
                                                                      



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          wages of $217.50 per week would find living in Orange County "a 
          nearly impossible feat, considering the average rent for a 
          family of four in Orange County is about $1,600 per month; 
          almost twice what a wage earner with a garnishment order would 
          be receiving.  In Orange County, the living wage for a single 
          adult without children is $553.60 per week - again more than 
          twice what a wage earner with a garnishment order would bring 
          home.  

          Legal Services of Northern California, a supporter of this bill, 
          reports that "the living wage for a single adult without 
          children in some of our service areas is $412.40 for Yolo 
          County, $417.20 in Sacramento County, and $450 in Solano County. 
           The current protected amount ›from wage garnishment] covers 
          only 50 ›percent] of the wages necessary for our clients to 
          support the very basic needs of themselves and their families."  
          As such, it is not difficult to comprehend that judgment debtors 
          who are subject to the existing wage garnishment exemption 
          provision are finding it exceedingly difficult to provide for 
          themselves and their families.  

          The California Advocates for Nursing Home Reform, in support of 
          this bill, state that the modest raise of wage garnishment 
          exemption provided in this bill, "families could prevent much 
          unnecessary suffering, including hunger, evictions, 
          repossessions, and bankruptcies - very important considerations 
          under today's economic climate."  The California Labor 
          Federation, also in support of this bill, argues that "›t]he 
          severe recession has pushed many families into financial crisis 
          and they are unable to pay off debt accrued in better economic 
          times. . . .  Basic necessities like rent, food and medicine 
          become unaffordable and people turn to predatory lenders to 
          survive.  Wage garnishment without a cushion creates a vicious 
          cycle of debt eventually pushing families into poverty, 
          homelessness, and illness."  This bill, by raising the amount of 
          disposable income that would be exempt from garnishment, would 
          provide judgment debtors a better chance at sustaining 
          themselves and their families while paying on a judgment.

          3.  Opposition  

          A coalition of opponents to this bill argue that it is premature 
          to further modify wage garnishment exemptions until the impacts 
          of AB 1388 (Wieckowski, Ch. 694, Stats. 2011) are understood.  
          AB 1388 deleted the exception from the wage garnishment 
          exemption for common necessaries of life and instead provided an 
                                                                      



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          exception for wages necessary for the support of the judgment 
          debtor and his or her family.  AB 1388 also added the exception 
          for debt incurred pursuant to an order or award for the payment 
          of attorney's fees under specified sections of the Family Code.

          CAC argues that AB 1388 "added undue restrictions on the ability 
          to collect on judgments based on necessaries, thus limiting a 
          creditor's ability to be reimbursed for ? those services 
          extended to consumers on credit terms that were previously a 
          priority over non-necessaries."  Opponents argue that this bill 
          would further exempt even more of a debtor's income from 
          garnishment and will make it more difficult for creditors to 
          collect on lawfully owed debts.  As with AB 1388, it should be 
          noted that raising the minimum floor of exempt earnings would 
          not make debts unenforceable through wage garnishment, or even 
          stop the garnishment of the portion of wages not exempt from 
          garnishment.

          Opponents of this bill argue that, among other things, "if a 
          debtor chooses to take goods or services, their obligation 
          should be to pay for what they have taken.  If they truly cannot 
          because there is a disastrous change in financial circumstances 
          they can file for bankruptcy."  Supporters of this bill argue 
          that the better public policy is to provide the judgment debtor 
          with sufficient access to his or her own earnings so that the 
          judgment debtor is able to support themselves and their 
          families, rather than increasing debts owed, and so that the 
          judgment debtor will continue to pay on the judgment with 
          non-exempt wages, instead of erasing the debt through 
          bankruptcy.  Further, the Consumer Law Project argues that this 
          bill would help reduce burdens on the court because raising the 
          amount of wages exempt from garnishment will result in fewer 
          unlawful detainer actions, automobile repossessions, and 
          instances of domestic violence related to financial stress.

          4.  Author's amendments  

          To maintain consistency throughout the wage garnishment 
          exemption section revised by this bill, the following author's 
          amendment would strike "garnishment" and instead provide for 
          "levy under an earnings withholding order."  

             Author's Amendments  :

             1.   On page 3, in line 27, delete and replace "garnishment" 
               with "levy under an earnings withholding order"
                                                                      



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             2.   On page 3, in line 38, delete and replace "garnishment" 
               with "levy under an earnings withholding order"


           Support  :  American Federation of State, County and Municipal 
          Employees; California Advocates for California Labor Federation, 
          AFL-CIO; Central California Legal Services, Inc.; Inland Empire 
          Latino Lawyers Association, Inc.; Legal Services of Northern 
          California; Public Counsel; Public Law Center; Yuba Sutter Legal 
          Center for Seniors; one individual

           Opposition  :  California Association of Collectors; California 
          Bankers Association; California Chamber of Commerce; California 
          Retailers Association; USCB, Inc.

                                        HISTORY
           
           Source  :  Western Center on Law & Poverty

           Related Pending Legislation  :  SB 890 (Leno, 2011) would enact 
          the Fair Debt Buyers Practices Act and, among other things, 
          require certain documents to be provided to a judgment debtor 
          regarding wage garnishment.  This bill is currently at the 
          Assembly Desk pending referral.

           Prior Legislation  :

          AB 1388 (Wieckowski, Ch. 694, Stats. 2011) See Comment 3.

          AB 1321 (Wieckowski, 2011), among other things, would have 
          required an employer to cease wage withholding of a judgment 
          debtor to the extent the judgment debtor claimed an exemption 
          from garnishment.  This bill died in the Assembly Appropriations 
          Committee.

           Prior Vote  :

          Assembly Floor (Ayes 46, Noes 25)
          Assembly Committee on Judiciary (Ayes 7, Noes 3)

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