BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 308|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 308
Author: Wieckowski (D)
Amended: 5/5/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 5-1, 4/28/15
AYES: Jackson, Hertzberg, Leno, Monning, Wieckowski
NOES: Anderson
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Debtor exemptions
SOURCE: Author
DIGEST: This bill increases the amounts of all of the specific
asset exemptions available to bankruptcy debtors (the "703
exemptions") and increases certain amounts and expands the list
of exempt specified property regarding monetary judgments (the
"704 exemptions"). This bill also removes the six-month
homestead reinvestment requirements and deletes the three-tiered
homestead exemption and, instead, provides for a single
homestead exemption of up to $300,000.
ANALYSIS:
Existing law:
1) Prohibits, in the absence of default, a motor vehicle
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seller or holder of a contract from accelerating the
maturity of any part or all of the amount due under the
contract or repossess the motor vehicle.
2) Allows, after default by a motor vehicle buyer, the seller
or holder to repossess or voluntarily accept surrender of
the motor vehicle and any person liable on the contract has
a right to reinstate the contract or the seller or holder
cannot accelerate the maturity of any part or all of the
contract prior to the expiration of the right to reinstate,
except under specified conditions.
3) Does not apply those protections for loans made pursuant
to the California Finance Lenders Law.
4) Provides that, except as otherwise provided by law, all
property of the judgment debtor is subject to enforcement of
a money judgment.
5) Provides that in a case under Title 11 of the United
States Code (relating to bankruptcy), all of the exemptions,
other than Code of Civil Procedure Section 703.140(b)
exemptions, are applicable regardless of whether there is a
money judgment against the debtor or whether a money
judgment is being enforced by execution sale or any other
procedure. The Section 703.140(b) exemptions may be elected
in lieu of all other available exemptions, as specified.
6) Provides for 11 categories of exemptions (the 703
exemptions), modeled after federal law, which the bankruptcy
debtor may elect to use in lieu of the 704 exemptions.
Those exemptions include:
the debtor's aggregate interest, not to exceed $24,060
in value, in real property or personal property that the
debtor or a dependent of the debtor uses as a residence,
in a cooperative that owns property that the debtor or a
dependent of the debtor uses as a residence, or in a
burial plot for the debtor or a dependent of the debtor;
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the debtor's interest, not to exceed $4,800 in value,
in one motor vehicle;
the debtor's interest, not to exceed $600 in value in
any particular item, in household furnishings, household
goods, wearing apparel, appliances, books, animals, crops,
or musical instruments, that are held primarily for the
personal, family, or household use of the debtor or a
dependent of the debtor;
the debtor's aggregate interest, not to exceed $1,425
in value, in jewelry held primarily for the personal,
family, or household use of the debtor or a dependent of
the debtor;
the debtor's aggregate interest, not to exceed $1,280,
as specified, in any property;
the debtor's aggregate interest, not to exceed $7,175
in value, in any implements, professional books, or tools
of the trade of the debtor or the trade of a dependent of
the debtor;
the debtor's aggregate interest not to exceed $12,860
in value, in any accrued dividend or interest under, or
loan value of, any unmatured life insurance contract owned
by the debtor under which the insured is the debtor or an
individual of whom the debtor is a dependent;
the debtor's right to receive payment under a stock
bonus, pension, profit-sharing, annuity, or similar plan
or contract on account of illness, disability, death, age,
or length of service, to the extent reasonably necessary
for the support of the debtor and any dependent of the
debtor, unless the plan or contract was established by or
under the auspices of an insider that employed the debtor
at the time the debtor's rights under the plan or contract
arose, the payment is on account of age or length of
service, and the plan or contract does not otherwise
qualify, as specified, under the Internal Revenue Code;
and
the debtor's rights to receive, or property that is
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traceable to, a payment, not to exceed $24,060, on account
of personal bodily injury of the debtor, or an individual
of whom the debtor is a dependent.
1) Requires, if a bankruptcy petition is filed individually
and not jointly, for a husband or a wife, the husband and
wife to waive the right to claim 704 exemptions in order to
elect to instead utilize the applicable 703 exemptions.
2) Requires the Judicial Council to adjust the 703 exemptions
at every three-year interval ending on April 1 thereafter,
as specified, based on the change in the annual California
Consumer Price Index for All Urban Consumers, as specified.
3) Requires, under the California Constitution, the
Legislature to protect, by law, a certain portion of the
homestead and other property, from forced sale.
4) Specifies 21 different types of property and the
conditions under an amount of which a debtor may claim an
exemption from enforcement of a money judgment. Those
exemptions (the 704 exemptions) include motor vehicles, up
to $2,300, vacation credits, and self-employed retirement
plans and individual retirement annuities, as specified.
5) Contains both an automatic and a declared homestead
exemption that serve to protect a portion of equity in a
debtor's home from creditors. Existing law states that the
automatic homestead exemption applies to the principal
dwelling in which the judgment debtor, or spouse,
continuously resided from the date of attachment of the
judgment creditor's lien until a court determination that
the dwelling is a homestead. A declared homestead exemption
applies, as specified, to a dwelling specified in a recorded
homestead declaration.
6) Sets the three-tiered amount of the homestead exemption as
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follows:
$75,000, unless the judgment debtor or spouse of the
judgment debtor who resides in the homestead is a person
described below;
$100,000 if the judgment debtor or spouse of the
judgment debtor who resides in the homestead at the time
of sale is a member of the family unit, and there is at
least one member of the family unit who owns no interest
in the homestead or whose only interest in the homestead
is a community property interest with the judgment debtor;
or
$175,000 if the judgment debtor or spouse of the
judgment debtor who resides in the homestead at the time
of sale is either: (a) a person 65 years of age or older;
(b) a person physically or mentally disabled and as a
result of that disability is unable to engage in
substantial gainful employment, as specified; or (c) a
person 55 years of age or older with a limited gross
annual income.
1) Provides that if a declared homestead is voluntarily sold,
the proceeds of the sale are exempt in the declared
homestead exemptions for a period of six months after the
date of sale. Existing law provides that if the proceeds of
a declared homestead are invested in a new dwelling within
six months after the date of the voluntary sale or within
six months after proceeds of an execution sale or of
insurance or other indemnification for damage or destruction
are received, the new dwelling may be selected as a declared
homestead by recording a homestead declaration within the
applicable six month period. In that case, existing law
provides that the homestead has the same effect as if it had
been recorded at the time the prior homestead declaration
was recorded.
2) Requires, on April 1, 2007, and at each three-year
interval thereafter, the 704 exemptions for motor vehicles
and homesteads to be adjusted in accordance with the change
in the annual California Consumer Price Index for All Urban
Consumers. Existing law requires the Judicial Council, on
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April 1, 2013, and at each three-year interval thereafter,
to submit to the Legislature the amount by which the dollar
amounts of the above homestead exemptions may be increased
based on the change in the annual California Consumer Price
Index for All Urban Consumers. Those increases shall not
take effect unless they are approved by the Legislature.
This bill:
1)Provides that neither the act of filing a bankruptcy petition
by the buyer or other individual liable on the contract nor
the status of either of those persons as a debtor in
bankruptcy constitutes a default in the performance of any of
the buyer's obligations under the contract, and neither may be
used as a basis for accelerating the maturity of any part or
all of the amount due under the contract or for repossessing
the motor vehicle.
2)Provides that a waiver of 704 exemptions is not required from
a debtor who is separated from his or her spouse as of the
date the bankruptcy petition is commenced in order for the
debtor to elect to utilize the applicable 703 exemptions.
3)Increases the dollar amounts of the following 703 exemptions:
the exemption for the debtor's aggregate interest in
real or personal property, not to exceed $25,575 (an
increase from $24,060);
the exemption for the debtor's interest in a motor
vehicle or vehicles, not to exceed $6,000 (an increase from
$4,800 for a single vehicle);
the exemption for the debtor's interest in any
particular item, in household furnishings, household goods,
wearing apparel, appliances, books, animals, crops, or
musical instruments, not to exceed $650 (an increase from
$600);
the exemption for the debtor's aggregate interest in
jewelry, not to exceed $1,525 (an increase from $1,425);
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the exemption for the debtor's aggregate interest in any
property, not to exceed $1,350 (an increase from $1,280);
the exemption for the debtor's aggregate interest in
implements, professional books, or tools of the trade of
the debtor or the trade of a dependent of the debtor, not
to exceed $7,625 (an increase from $7,175);
the exemption for the debtor's aggregate interest in any
unmatured life insurance contract, up to $13,675 in value
(increased from $12,860); and
the exemption for the debtor's receipt of payment on
account of personal bodily injury, not to exceed $25,575
(an increase from $24,060).
1)Revises the exemption for stock bonus, pension,
profit-sharing, annuity, or similar plan or contract on
account of illness, disability, death, age, or length of
service, if the plan or contract does not otherwise qualify
under the Internal Revenue Code, on a basis other than a
technical defect alone.
2)Adds the following additional exemptions for the following:
(a) vacation credits or accrued, or unused, vacation pay, sick
leave, or family leave; (b) a cause of action arising out of
or regarding the violation of any law relating to the debtor's
employment; and (c) an award of damages from or a settlement
arising out of or regarding the violation of any law relating
to the debtor's employment, to the extent necessary for the
support of the debtor and the spouse and dependents of the
debtor.
3)Increases the dollar amount of the exemption for the debtor's
motor vehicles up to $6,000 (an increase from $2,300) and:
adds an exemption for the debtor's aggregate interest in
cash or deposit accounts, accounts receivable, and
inventory of a business, not to exceed $5,000;
adds exemptions for alimony, support, and separate
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maintenance, to the extent reasonably necessary for the
support of the debtor and any dependent of the debtor;
expands the exemption for the debtor's vacation credits
to also include accrued, or unused, vacation pay, sick
leave, or family leave;
expands the exemption for the debtor's self-employed
retirement plans and individual retirement annuities or
accounts provided for in the Internal Revenue Code for
accounts that do not qualify on the basis of a technical
defect alone; and
adds exemptions for a cause of action arising out of or
regarding the violation of any law relating to the judgment
debtor's employment and an award of damages from or a
settlement arising out of or regarding the violation of any
law relating to the judgment debtor's employment, to the
extent necessary for the support of the judgment debtor and
the spouse and dependents of the judgment debtor.
1)Deletes the homestead exemption providing that proceeds are
exempt for a period of six months after the time the proceeds
are actually received by the judgment debtor, except that, if
a homestead exemption is applied to other property of the
judgment debtor or the judgment debtor's spouse during that
period, the proceeds thereafter are not exempt.
2)Repeals the three tiers of the homestead exemption to instead
provide a homestead exemption up to $300,000.
3)Removes the restriction that proceeds of the sale of a
declared homestead are exempt only for a period of six months
after the sale and remove the six-month limitations on
claiming an exemption for the voluntary sale of a declared
homestead.
Comments
In a bankruptcy action, exemptions generally allow a person to
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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.
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.)
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. The
homestead exemption, which generally seeks to protect the
residence of a debtor from forced sale to satisfy debts, is also
significantly greater, providing a base exemption of $75,000,
$100,000 for married individuals, and $175,000 for seniors and
disabled individuals, as specified. Notably, the 703 exemptions
are specific exemptions that a bankruptcy debtor may elect in
lieu of all other exemptions while the 704 exemptions are
available to all debtors in California seeking to exempt
specified property from enforcement of a money judgment.
This bill increases the 703 and 704 exemption amounts in
accordance with cost of living increases and revises the 704
homestead exemption to remove the three-tiered provisions, and,
instead, provides for one homestead exemption up to $300,000.
This bill also provides debtor protection from motor vehicle
repossession or loan maturity acceleration.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
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SUPPORT: (Verified5/18/15)
National Association of Consumer Bankruptcy Attorneys
One individual
OPPOSITION: (Verified5/18/15)
California Association of Collectors, Inc.
California Bankers Association
DBA International
One individual
ARGUMENTS IN SUPPORT: The author writes: "Many sections
[of] California's bankruptcy provisions have been untouched
since their enactment. SB 308 makes updates to both the 703
exemptions and 704 exemptions in light of changing case law and
also makes changes so that the 703 exemptions more closely
mirror existing protections under the 704 exemptions. SB 308
increases exemption amounts for many areas under both the 703
and 704 exemptions. The bill ensures that a bankruptcy filing
alone does not trigger a default in an auto loan. The bill also
collapses the three homestead exemption categories and provides
for one homestead [exemption] that applies to all debtors,
regardless of family situation, age[,] or other characteristics.
SB 308 increases the homestead exemption to $[3]00,000."
The National Association of Consumer Bankruptcy Attorneys
(NACBA), in support, argue that this bill will allow small
business owners to retain a modest amount of assets, which are
essential to resume business operations, and is particularly
important given the fact that many underemployed workers attempt
to start home-based business in order to put food on the family
table. One individual argues that the cost of living increases
in this bill are appropriate because the current exemptions are
too low. Further, that individual contends that because
California is a car society, having the ability to exempt your
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car is a necessity. NACBA also argues that the "current
exemption of $2,900 is wholly inadequate today to protect a
modest vehicle in good working condition."
ARGUMENTS IN OPPOSITION: Opponents of this bill argue that
"[t]he purpose of the homestead exemption is for homeowners to
protect some equity in their homes, both before and after
bankruptcy, so they can use those funds to purchase another
home. The purpose of this statute is not to allow wealthy
individuals to use their homestead exemption as a loophole to
shield money. . . . Although wealthy individuals may not need
their homestead exemption funds for another home, they would be
able to pocket those funds to avoid paying their debts."
Opponents also argue that this bill "shields investments in
vehicles, vacation credits and accrued or unused vacation pay.
Considering the amount of vacation pay professionals or highly
paid individuals may receive, this amount of pay may be
significantly large. This is another loophole that wealthy and
highly compensated people can shield from collection."
Prepared by:Tara Welch / JUD. / (916) 651-4113
5/18/15 16:24:15
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