BILL ANALYSIS �
AB 929
Page 1
Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 929 (Wieckowski) - As Amended: March 31, 2011
SUBJECT : DEBTOR EXEMPTIONS: BANKRUPTCY
KEY ISSUES :
1)SHOULD THE SET OF PROPERTY EXEMPTIONS THAT MAY BE ELECTED BY
BANKRUPTCY DEBTORS IN LIEU OF ALL OTHER EXEMPTIONS (INCLUDING
THE CALIFORNIA HOMESTEAD EXEMPTION) BE REVISED AND EXPANDED TO
PROVIDE ADDITIONAL FLEXIBILITY AND RELIEF TO DEBTORS,
PARTICULARLY WITH RESPECT TO MOTOR VEHICLES, TOOLS OF THE
TRADE, AND OTHER SPECIFIED PROPERTY AND BENEFITS NOT CURRENTLY
EXEMPTED?
2)SHOULD THE AMOUNT OF THE HOMESTEAD EXEMPTION, WHICH PROTECTS A
SPECIFIED AMOUNT OF HOME EQUITY FROM CREDITORS, BE INCREASED?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
According to the author, an experienced bankruptcy attorney,
significant revisions to the state bankruptcy exemption statute
are warranted to assist bankruptcy debtors in California,
especially in light of the current mortgage crisis and poor
economy. This bill seeks to revise the set of property
exemptions ("Section 703 exemptions") that certain bankruptcy
debtors, particularly those who have little or no equity in a
home, typically elect in lieu of the broader set of all other
property exemptions ("Section 704 exemptions") that they might
otherwise elect because the latter exemptions are more
protective of debtors than their Section 703.140 counterparts.
Specifically, this bill would revise, recast, and expand the set
of Section 703.140 exemptions so that it more closely resembles
the set of exemptions available to debtors under Sections
704.010 through 704.210. In addition, this bill would increase
the amounts of exemption for the bankruptcy debtor's motor
vehicle and so-called "tools of the trade," which the author
contends will help preserve for the debtor "the essential items
he needs to recover from financial insolvency." Finally, the
bill also seeks to increase the amounts of the homestead
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exemption that is available to all judgment debtors, whether in
bankruptcy proceedings or not.
SUMMARY : Revises and expands the set of bankruptcy exemptions
("Section 703 exemptions") that a bankruptcy debtor may elect in
lieu of all other exemptions so that it more closely corresponds
to the broader set of all other property exemptions ("Section
704 exemptions") generally available to debtors in California
seeking to exempt specified property from enforcement of a money
judgment. Also increases the amounts of the homestead exemption
under Section 704.730. Specifically, this bill :
1)Revises and recasts the following Section 703 exemptions so
that they mirror corresponding Section 704 exemptions for
specified property:
a) The exemption for household furnishings, household
goods, wearing apparel, appliances, books, animals, crops,
or musical instruments.
b) The exemption for unmatured life insurance contracts.
c) The exemption for a cause of action for wrongful death,
or an award of damages or a settlement rising out of
wrongful death.
d) The exemption for a cause of action for personal injury,
or an award of damages or a settlement rising out of
personal injury.
e) The exemption for unemployment compensation payments.
f) The exemption for a cemetery plot for the debtor and the
spouse of the debtor.
2)Revises and recasts the following Section 703 exemptions so
that they mirror corresponding Section 704 exemptions for
specified property, but with an increase in the amount of the
exemption:
a) The exemption for the debtor's interest in a motor
vehicle or vehicles, not to exceed $4800 (an increase from
$2775 for a single vehicle).
b) The exemption for the debtor's aggregate interest in
jewelry, heirlooms, and works of art, not to exceed $5000
(an increase from $1150 for jewelry only).
c) The exemption for the debtor's aggregate interest in
tools, implements, instruments, materials, uniforms,
equipment, one commercial motor vehicle, and other personal
property (i.e. "tools of the trade") reasonably necessary
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to and actually used by the debtor or the debtor's spouse
in the exercise of their respective professions, not to
exceed $6075 (an increase from $1750 for tools of the
trade, excluding any vehicles).
3)Adds additional exemptions to Section 703, which a bankruptcy
debtor may elect in lieu of all other exemptions, that mirror
corresponding Section 704 exemptions for the following
property:
a) The exemption for workers' compensation benefits.
b) The exemption for public aid or similar aid provided by
a charitable organization.
c) The exemption for relocation benefits for displacement
from a dwelling, as specified.
d) The exemption for financial aid for higher education.
4)Increases the amounts of the homestead exemption under Section
704.730, as specified:
a) Increases the base homestead exemption from $75,000 to
$150,000.
b) Increases the exemption from $100,000 to $250,000 for a
married couple who resides in the homestead.
c) Increases the exemption from $175,000 to $350,000 if the
judgment debtor or spouse who resides in the homestead is
65 years of age or older, disabled, or 55 years of age or
older with a limited income, as provided.
EXISTING LAW :
1)Pursuant to Code of Civil Procedure Section 703.140:
a) Provides that in a case under Title 11 of the United
States Code �relating to bankruptcy], all of the exemptions
provided by this chapter, including the homestead
exemption, other than the �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,
but the �Section 703.140(b) exemptions] may be elected in
lieu of all other available exemptions, as specified.
(Section 703.140 (a).)
b) Describes eleven categories of exemptions, modeled after
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federal law �11 U.S.C. � 522, subd. (d)] which the
bankruptcy debtor may elect pursuant to subdivision (a),
including, but not limited to:
i) The debtor's aggregate interest, not to exceed
$17,425 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.
ii) The debtor's interest, not to exceed $2,775 in
value, in one motor vehicle.
iii) The debtor's interest, not to exceed $450 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.
iv) The debtor's aggregate interest, not to exceed
$1,150 in value, in jewelry held primarily for the
personal, family, or household use of the debtor or a
dependent of the debtor.
v) The debtor's aggregate interest, not to exceed
$1,750 in value, in any implements, professional books,
or tools of the trade of the debtor or the trade of a
dependent of the debtor. (Section 703.140(b).)
2)Pursuant to Article 3 (Exempt Property) of Chapter 4 of
Division 2 of Title 9 of Part 2 of the Code of Civil
Procedure, specifies 21 different types of property and the
conditions under and amount of which a debtor may claim an
exemption from enforcement of a money judgment. (Sections
704.010 through 704.210.)
3)Provides that the amount of the homestead exemption is one of
the following:
a) An exemption for $75,000 as the base homestead
exemption.
b) An exemption for $100,000 for a married couple who
resides in the homestead;
c) An exemption for $175,000 if the judgment debtor or
spouse who resides in the homestead is 65 years of age or
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older, disabled, or 55 years of age or older with a limited
income, as specified. (Section 704.730(a).)
4)Requires the Judicial Council, on April 1, 2013, and at each
three-year interval thereafter, to submit to the Legislature
the amount the homestead exemptions may be increased based on
changes in the California Consumer Price Index, and provides
that those increases shall not take effect unless they are
approved by the Legislature. Further requires the Judicial
Council to publish a list of the current dollar amounts of
exemptions in any year that the Legislature votes to increase
the homestead exemption amounts. (Section 703.150 (c) to
(e).)
COMMENTS : This bill seeks to revise the set of property
exemptions ("Section 703 exemptions") that certain bankruptcy
debtors, particularly those who have little or no equity in a
home, typically elect in lieu of the broader set of all other
property exemptions ("Section 704 exemptions") that they might
otherwise elect because the latter exemptions are more
protective of debtors than their Section 703.140 counterparts.
Specifically, this bill would revise, recast, and expand the set
of Section 703.140 exemptions so that it more closely resembles
the set of exemptions available to debtors under Sections
704.010 through 704.210. In addition, this bill would increase
the amounts of exemption for the bankruptcy debtor's motor
vehicle and so-called "tools of the trade," which the author
contends will help preserve for the debtor "the essential items
he needs to recover from financial insolvency." Finally, the
bill also seeks to increase the amounts of the homestead
exemption that is available to all judgment debtors, whether in
bankruptcy proceedings or not.
Background on Exemption Statutes. Both the federal Bankruptcy
Code and California law provide numerous exemptions that are
intended to save bankruptcy debtors and their families from
extreme hardship. "The fundamental purpose behind exemptions in
bankruptcy is to ensure that the debtor is not left destitute
and dependent upon the public purse after distribution of his
assets to creditors. Along with the discharge of debts,
exemptions are the principal means by which the bankruptcy
proceeding allows the debtor to rehabilitate himself and his
family financially. Thus, exemptions provide the debtor with a
fresh start, and 'shift the burden of providing the debtor with
minimal financial support from society to the debtor's
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creditors.'" (Exemptions Under the Bankruptcy Code: Using
California's New Homestead Law as a Medium for Analysis. 72
California Law Review 922 (1984).)
The exemption provision of the U.S. Bankruptcy Code has two key
provisions. The first permits the debtor to choose between the
Code's exemptions and those provided by the debtor's state of
domicile. The second exemption provision of the Code, however,
allows the states to completely negate the Code's exemptions and
instead apply only their own exemption provisions to the
bankruptcy case. (Id. at 925.) Under this so-called "opt-out
provision," California has chosen to opt-out of the federal
exemption scheme, so California residents filing for bankruptcy
are limited to the exemptions afforded under state law. (In re
Rolland, Bkrtcy.C.D.Cal.2004, 317 B.R. 402.)
The Choice Facing California Debtors. Under state law,
California bankruptcy debtors have two sets of exemption options
to choose from, one set of state law nonbankruptcy exemptions
(hereafter "Section 704 exemptions") and a second set modeled
after federal bankruptcy exemptions (hereafter "Section 703
exemptions"); however, the debtor may choose only one set of
exemptions. (In re Steward, 9th Cir. BAP (Cal.) 1998, 227 B.R.
895.) A comparison between these two sets of exemptions reveals
that the �704 exemptions are more numerous and better protect
debtors who own homes, because of the more generous homestead
exemption provided by Section 704.730 ($75,000 base level) as
compared to its counterpart under �703.140(b) ($17,425).
Section 704 exemptions are not limited to bankruptcy cases, but
are generally available to debtors in California seeking to
exempt certain property from enforcement of a money judgment.
On the other hand, some debtors may benefit more by choosing the
� 703 exemptions because of the unique "wild-card" exemption
(Section 703.140(b)(5)) that provides flexibility to protect
equity in a variety of property. If the debtor is not a
homeowner or does not wish to protect equity in the home, the
$17,425 exemption becomes a "wildcard" and may be used to
protect any of the debtor's property. In short, the debtor
often must choose between the larger homestead exemption under
the �704 slate, at the expense of flexibility offered by the
wildcard exemption under the �703 slate.
To Assist Debtors With Little or No Equity in a Home, This Bill
Would Provide Additional Flexibility and Relief to Debtors
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Choosing the � 703 Exemptions. According to the author, an
experienced bankruptcy attorney, significant revisions to the
Section 703.140(b) slate of exemptions are warranted to assist
bankruptcy debtors in California, especially in light of the
current mortgage crisis and poor economy. The author states:
Considering the current dire situation with home
ownership and financial struggle in the state,
assisting debtors in recovering from hardship could not
be timelier. A person filing for bankruptcy who has a
decent amount of equity in his home would be wise to
choose (the � 704 slate) because it affords more
exemptions. Many people however are in the unfortunate
position of being upside-down on their mortgages in
that they paid more than their home is now worth.
There are also others who do not own a home or have
very little equity in their home. For these people,
(the � 703 slate) is the appropriate exemption statute,
but both the categories of exemptions and the quantity
available for exemption are drastically less. This
bill would create a more even and fair � 703.140 so
that it reflects (the
� 704 slate) more closely and does not strip a debtor
of the essential items he needs to recover from
financial insolvency.
This bill revises and recasts the � 703.140 exemptions so that
they more closely resemble the slate of exemptions available to
debtors under Sections 704.010 through 704.210.
In several cases where certain property (e.g. workers
compensation benefits, relocation benefits) was exempt only
under the � 704 slate, this bill would exempt those types of
property in the � 703 slate using identical language.
In cases where both slates provide an exemption for certain
types of property (e.g. household furnishings, life insurance
contracts) but using non-identical language, this bill would
conform exemption language in both slates to adopt the form
contained in the � 704 slate, particularly when the exemption
is not measured in dollar value.
In the case of a debtor's motor vehicle, tools of the trade,
and jewelry or heirlooms, this bill recasts the existing � 703
exemptions so that they mirror corresponding � 704 exemptions,
but with a net increase in the amount of the � 703 exemption.
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The effect of expanding the range of property exemptions
available to bankruptcy debtors choosing the � 703 slate is
magnified because the unique wild-card exemption provides more
flexibility to protect that broader range of property,
particularly for debtors with little or no equity in a home.
Rationale for Expanding Exemptions for Tools of the Trade and
Motor Vehicles: Under this bill, bankruptcy debtors will now
have available to them the same $6,075 exemption for tools of
the trade that now exists in � 704.060. In addition, the
meaning of "tools of the trade" under � 703.140(b)(6) will have
changed as well. Where the $1,750 exemption previously applied
to "any implements, professional books, or tools of the trade of
the debtor", this bill would recast the exemption to apply to
"tools, implements, instruments, materials, uniforms,
furnishings, books, equipment, one motor vehicle, one vessel,
and other personal property . . . if reasonably necessary to and
actually used by the debtor in the exercise of the trade by
which the debtor earns a livelihood"-arguably a more expansive
classification of such property. According to the author,
self-employed debtors in bankruptcy or those who need tools for
their job are at increased risk of not being able to continue
working if the total value of their tools exceeds $1750, which
is often the case. Therefore, the author contends "permitting
debtors to keep more assets such as tools of the trade and a
work-related automobile will enable debtors to recover from
financial insolvency more quickly and successfully."
This Bill Also Increases the Homestead Exemption For All
California Debtors. The purpose of the homestead exemption is
to allow judgment debtors to salvage at least a portion of any
equity that they may have built up in their house. Existing law
sets a $75,000 base amount, which increases to $100,000 for
married couples who reside in the home at the time of attempted
sale, and to $175,000 if the judgment debtor or spouse who
resides at the home at the time of the sale is either 65 years
of age or older, disabled, or 55 years of age or older and
living on a limited income, as specified. This bill would raise
those amounts, respectively, to $150,000, $250,000, and
$350,000, and would potentially benefit all judgment debtors
because, as part of the � 704 slate, the homestead exemption is
available to all debtors whether filing for bankruptcy or not.
According to the author, this bill increases the base homestead
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exemption to $150,000 because that amount represents
approximately half of the median home price in California
($286,000) according to California Association of Realtors'
market data from March 2011. Furthermore, the author cites a
2003 research study indicating that in states with high or
unlimited homestead exemptions, homeowners are 35% more likely
to be self-employed as compared to states with low exemption
levels. ("Personal Bankruptcy and the Level of Entrepreneurial
Activity." Journal of Law and Economics (2003) 46(2), 543-567.)
The author contends that the study supports the idea that
raising homestead exemptions will help encourage entrepreneurial
activity in the state because homeowners would not fear losing
their homes.
Prior Legislation : AB 1046 (Anderson), Ch. 499, Stats. 2009,
raised the existing levels of the California homestead exemption
(Section 704.730) to adjust for inflation, as specified.
AB 182 (Harman), Ch. 379, Stats. 2003, required the Judicial
Council to adjust, at 3-year intervals, the amount of the
exemptions applicable to exempt property based on change in the
annual California Consumer Price Index for All Urban Consumers,
and increased the statutory value of various forms of real and
personal property detailed in the slate of � 704 exemptions.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334