BILL ANALYSIS �
AB 929
Page 1
ASSEMBLY THIRD READING
AB 929 (Wieckowski)
As Amended March 31, 2011
Majority vote
JUDICIARY 8-0 APPROPRIATIONS 13-3
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|Ayes:|Feuer, Wagner, Atkins, |Ayes:|Fuentes, Blumenfield, |
| |Dickinson, Huber, | |Bradford, Charles |
| |Huffman, Monning, | |Calderon, Campos, Davis, |
| |Wieckowski | |Gatto, Hall, Hill, Lara, |
| | | |Mitchell, Solorio, Wagner |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Harkey, Nielsen, Norby |
| | | | |
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SUMMARY : Revises and expands the set of bankruptcy exemptions
(Code of Civil Procedure (CCP) "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 (CCP "Section 704 exemptions") generally
available to debtors in California seeking to exempt specified
property from enforcement of a money judgment. Increases the
amounts of the homestead exemption under CCP Section 704.730.
Specifically, this bill :
1)Revises and recasts the following CCP Section 703 exemptions so
that they mirror corresponding CCP 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,
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or an award of damages or a settlement rising out of
personal injury;
e) The exemption for unemployment compensation payments;
and,
f) The exemption for a cemetery plot for the debtor and the
spouse of the debtor.
2)Revises and recasts the following CCP Section 703 exemptions so
that they mirror corresponding CCP 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 $4,800 (an increase from
$2,775 for a single vehicle);
b) The exemption for the debtor's aggregate interest in
jewelry, heirlooms, and works of art, not to exceed $5,000
(an increase from $1,150 for jewelry only); and,
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 to
and actually used by the debtor or the debtor's spouse in
the exercise of their respective professions, not to exceed
$6,075 (an increase from $1,750 for tools of the trade,
excluding any vehicles).
3)Adds additional exemptions to CCP Section 703, which a
bankruptcy debtor may elect in lieu of all other exemptions,
that mirror corresponding CCP 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; and,
d) The exemption for financial aid for higher education.
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4)Increases the amounts of the homestead exemption under CCP
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; and,
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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, negligible fiscal impact.
COMMENTS : According to the author, an experienced bankruptcy
attorney, significant revisions to the CCP 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. This bill seeks to revise the set of property
exemptions (CCP "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 (CCP "Section 704 exemptions") that they
might otherwise elect because the latter exemptions are more
protective of debtors than their CCP Section 703.140
counterparts. Specifically, this bill would revise, recast, and
expand the set of CCP Section 703.140 exemptions so that it more
closely resembles the set of exemptions available to debtors
under CCP 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.
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
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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 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.)
Under state law, California bankruptcy debtors have two sets of
exemption options to choose from, one set of state law
nonbankruptcy exemptions (CCP "Section 704 exemptions") and a
second set modeled after federal bankruptcy exemptions (CCP
"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 CCP Section 704 exemptions are more numerous and
better protect debtors who own homes, because of the more
generous homestead exemption provided by CCP Section 704.730
($75,000 base level) as compared to its counterpart under CCP
Section 703.140(b) ($17,425). CCP 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
CCP Section 703 exemptions because of the unique "wild-card"
exemption that provides flexibility to protect equity in a
variety of property. If the debtor is not a homeowner or does
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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 CCP Section 704
slate, at the expense of flexibility offered by the wildcard
exemption under the CCP Section 703 slate.
The effect of expanding the range of property exemptions
available to bankruptcy debtors choosing the CCP Section 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.
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 CCP Section 704.060. In addition, the meaning of
"tools of the trade" under CCP Section 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 $1,750, 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."
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
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$150,000, $250,000, and $350,000, and would potentially benefit
all judgment debtors because, as part of the CCP Section 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
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.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0000604