BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                              2013-2014 Regular Session


          AB 1945 (Wieckowski)
          As Amended March 28, 2014
          Hearing Date: June 10, 2014
          Fiscal: No
          Urgency: No
          TMW


                                        SUBJECT
                                           
                     Enforcement of Money Judgments:  Exemptions

                                      DESCRIPTION 

          Existing law provides that the spouse of a judgment debtor may  
          claim a community property exemption from a judgment creditor's  
          enforcement of the money judgment against the debtor.  This bill  
          would also authorize that exemption for a domestic partner of  
          the judgment debtor.

                                      BACKGROUND  

          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 creditors' claims.  These property exemptions are designed  
          to ensure that a debtor maintains the ability to support himself  
          or herself, as well as dependent family members, after the entry  
          of judgment, and also to facilitate the debtor's financial  
          recovery.  Individuals filing bankruptcy in California can  
          choose between two different sets of exemptions:  the 703  
          exemptions or the 704 exemptions.

          The "703 exemptions," located in Code of Civil Procedure Section  
          703.140(b), consist of 11 categories that are modeled after  
          federal bankruptcy law.  In comparison, the "704 exemptions,"  
          contained in Code of Civil Procedure Sections 704.010 through  
          704.210, provide 21 different types of exemptions that protect a  
          wider range of property.  Additionally, the 703 exemptions are  
          specific exemptions that a bankruptcy debtor may elect in lieu  
          of all other exemptions while the 704 exemptions are available  
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          to all bankruptcy or nonbankruptcy debtors in California seeking  
          to exempt specified property from enforcement of a money  
          judgment.

          Existing law authorizes the spouse of a judgment debtor to claim  
          a community property exemption from a judgment creditor's  
          enforcement of the money judgment against the debtor in a  
          bankruptcy action.  This bill would also authorize that  
          exemption for a domestic partner of the judgment debtor.

                                CHANGES TO EXISTING LAW
           
           Existing law  provides that, except as otherwise provided by law,  
          all property of the judgment debtor is subject to enforcement of  
          a money judgment.  (Code Civ. Proc. Sec. 695.010 (a).)

           Existing law  , the 704 exemptions, provides for 21 specific  
          exemptions that limit the enforceability of a money judgment  
          against a debtor's personal property, including motor vehicles,  
          residential improvement materials, jewelry, heirlooms, and works  
          of art, tools and implements used in the exercise of the  
          debtor's trade, business, or profession, public benefit  
          accounts, inmate trust funds, and unmatured life insurance  
          policies.  (Code Civ. Proc. Sec. 704.010 et seq.)

           Existing law  , the 703 exemptions, makes 11 similar exemptions  
          available to debtors in personal bankruptcy proceedings.  (Code  
          Civ. Proc. Sec. 703.140.)

           Existing law  provides that the 703 exemptions apply only to  
          property of a natural person, and may be claimed by any of the  
          following persons:  (1) in all cases, by the judgment debtor or  
          a person acting on behalf of the judgment debtor; and (2) in the  
          case of community property, by the spouse of the judgment  
          debtor, whether or not the spouse is also a judgment debtor  
          under the judgment. (Code Civ. Proc. Sec. 703.020.)

          Existing law  provides for the creation of a legal entity called  
          a domestic partnership, wherein two adults have chosen to share  
          one another's lives in an intimate and committed relationship of  
          mutual caring.  (Fam. Code Sec. 297.)

           Existing law  provides that registered domestic partners have the  
          same rights, protections, and benefits, and are subject to the  
          same responsibilities, obligations, and duties under law,  
          whether they derive from statutes, administrative regulations,  
                                                                      



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          court rules, government policies, common law, or any other  
          provisions or sources of law, as are granted to and imposed upon  
          spouses.  (Fam. Code Sec. 297.5(a).)

           This bill  would provide that, in the case of community property  
          subject to the enforceability of a money judgment against a  
          debtor's property, the domestic partner of a judgment debtor may  
          claim a 703 exemption, whether or not the domestic partner is  
          also a judgment debtor under the judgment.

                                        COMMENT
           
          1.  Stated need for the bill  
          
          The author writes:
            The [United States] Bankruptcy Court of the Central District  
            of [California] examined in 2011 whether it was legal to  
            dismiss a homosexual married couple's joint bankruptcy filing  
            because they were homosexual.  It held that [the federal  
            Defense of Marriage Act (DOMA)] violated the debtor's equal  
            protection rights afforded under the Fifth Amendment of the  
            United States Constitution, either under heightened scrutiny  
            or under rational basis review (In re Balas, 449 BR 567 (Case  
            No. 2:11-bk-17831 TD)).   However, since the overturning of  
            DOMA by the Supreme Court, it is unclear whether domestic  
            partners may file for bankruptcy jointly.

            AB 1945 makes clear that registered domestic partners can  
            claim property exemptions in a bankruptcy just as spouses in a  
            marriage can, regardless of whether the partners file jointly  
            or not.  While state law says that registered domestic  
            partners have the same rights, protections and benefits as  
            spouses, it is unclear whether domestic partners can file  
            jointly in a bankruptcy.  AB 1945 settles this issue.

          2.  Statutory clarification of domestic partner exemptions for  
            money judgments  

          This bill would provide that the domestic partner of a judgment  
          debtor may claim a community property exemption from a judgment  
          creditor's enforcement of the money judgment against the debtor.  
           The author argues that this bill is necessary to clarify the  
          existing uncertainty whether registered domestic partners can  
          jointly file for bankruptcy and claim the same property  
          exemptions as married couples.
          
                                                                      



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          Under the federal Bankruptcy Code, states may either adopt the  
          federal exemptions listed in the Bankruptcy Code or opt out of  
          those exemptions and create different judgment exemptions.  (See  
          11 U.S.C. Sec. 522(b)(1).)  California has not authorized the  
          use of the exemptions in the federal Bankruptcy Code, so  
          California residents filing for bankruptcy are limited to the  
          exemptions allowable to California residents under nonbankruptcy  
          law.  (See Code Civ. Proc. Sec. 703.130.)

          By clarifying that the domestic partner of the judgment debtor  
          is authorized to claim an exemption, this bill would codify the  
          court's holding in In re Rabin (2006) 359 B.R. 242.  In Rabin,  
          the domestic partner debtors argued that forcing domestic  
          partners to file separate bankruptcy petitions while allowing  
          only one combined homestead bankruptcy exemption pursuant to  
          California's spousal homestead exemption was inequitable.  The  
          court held that "[b]ecause California has opted out of the  
          federal bankruptcy exemption scheme, residents who file  
          bankruptcy are limited to exemptions allowed under the state's  
          exemption scheme.  Under California law, the homestead exemption  
          rights of registrations under the [California Domestic Partner  
          Rights and Responsibilities Act (DPRRA)] are identical to those  
          of people who are married, which is a single combined  
          exemption."  (Id. at p. 249.)  In codifying the Rabin court's  
          holding that domestic partners may claim the same judgment  
          exemptions as spouses, this bill eliminates any uncertainty that  
          domestic partners are to be treated equal to spouses in federal  
          bankruptcy cases brought in California.  
          It is important to note that this bill is limited in its reach  
          and can only clarify bankruptcy exemptions but cannot authorize  
          domestic partners to file a joint bankruptcy application.  This  
          is because bankruptcy proceedings are established under federal  
          law, which provides who may file a single or joint application,  
          while state law specifies what type of exemptions the person may  
          claim against the money judgment.  Federal law, 11 U.S.C. Sec.  
          302, provides that an individual and the individual's spouse may  
          file a joint petition.  Under the Defense of Marriage Act  
          (DOMA), a spouse is a person of the opposite sex.  Although the  
          Supreme Court has declared unconstitutional the application of  
          DOMA to a federal law that results in inequality for spouses of  
          the same sex, there has yet to be a determination that same-sex  
          domestic registered partners may be considered spouses with  
          equal protection under federal law.  (See U.S. v. Windsor (2013)  
          133 S. Ct. 2675.)  

          The Rabin court noted that "Bankruptcy Code section 302 does  
                                                                      



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          indeed limit joint filings (and the payment of a single fee) to  
          married people as a matter of federal law; however, the language  
          of the statute suggests that there is no more than a presumption  
          that cases filed by spouses should be jointly administered,  
          which presumption may be overcome if the court determines that  
          joint administration should not take place.  Moreover, as  
          occurred here, consolidation of cases brought by individuals who  
          are not spouses may also be ordered.  In determining whether  
          cases of individual debtors should be consolidated, there is no  
          reason to suppose that bankruptcy courts would apply different  
          criteria based merely on the gender of the parties.  This is  
          especially so where, as here, applicable state law actively  
          eliminates distinctions on that basis."  (In re Rabin, supra,  
          359 B.R. 242, 247-248.)  

          Thus, while California law provides for domestic partnerships  
          and extends to those partnerships all rights and benefits  
          provided by state law to spouses, federal law does not expressly  
          provide for domestic partnerships.  While this bill cannot  
          expand federal bankruptcy law to authorize a state domestic  
          partnership to file a joint bankruptcy application, it does  
          expand the use of exemptions to the domestic partner of the  
          judgment debtor.  Although individuals in a domestic partnership  
          would have to initially file separate bankruptcy applications,  
          the Rabin court provides guidance to these individuals regarding  
          how the two cases could be jointly administered.


           Support  :  None Known

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  Author

          Related Pending Legislation  :  AB 1853 (Wieckowski, 2014) would  
          remove the requirement that judgment debtors reinvest homestead  
          exemption money into another property within six months from the  
          date the home was sold, or else lose their judgment exemption  
          status, and would exempt benefits from matured life insurance  
          policies, including endowment and annuity policies, and vacation  
          credits or accrued or unused vacation pay.  AB 1853 was held  
          under submission in the Assembly Committee on Appropriations.

           Prior Legislation  :
                                                                      



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          AB 198 (Wieckowski, 2013) would have created additional new  
          categories of property exemptions available to debtors and would  
          raise the amount of the homestead exemption from between $75,000  
          and $175,000 to between $200,000 and $400,000.  AB 198 was held  
          under submission in the Assembly Committee on Appropriations.

          AB 929 (Wieckowski, Ch. 678, Stats. 2012) increased the dollar  
          amount of the exemptions for a debtor's interest in motor  
          vehicles, jewelry, professional books, and tools of the trade of  
          the debtor or the debtor's dependent, and also increased the  
          amount of the homestead exemption for persons 55 years of age or  
          older who meet specified low-income criteria.

          AB 1046 (Anderson, Ch. 499, Stats. 2009) raised the amounts of a  
          debtor's homestead exemption by $25,000 in each available  
          category, establishing the current statutory levels of $75,000,  
          $150,000, and $175,000.

          AB 182 (Harman, Ch. 379, Stats. 2003) raised the dollar amounts  
          a debtor may claim for exemptions from enforcement of a money  
          judgment and in bankruptcy actions.  

          SB 832 (Kopp, Ch. 196, Stats. 1995) raised the dollar amounts a  
          debtor may claim for exemptions from enforcement of a money  
          judgment and in bankruptcy actions.

          AB 707 (McAlister, Ch. 1364, Stats. 1982) codified the  
          Enforcement of Judgments Law (Code Civ. Proc. Sec. 680.010 et  
          seq.), including the statutory dollar amount of personal  
          property exempted from the enforcement of monetary judgments.

           Prior Vote  :

          Assembly Floor (Ayes 72, Noes 0) 
          Assembly Committee on Judiciary (Ayes 10, Noes 0)

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