BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 929 (Wieckowski)
Hearing Date: 08/25/2011 Amended: 03/31/2011
Consultant: Jolie Onodera Policy Vote: Judiciary 3-2
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BILL SUMMARY: AB 929 would revise and expand the set of specific
asset exemptions available to bankruptcy debtors (the "703
exemptions") to generally conform to the exemptions under
existing law available to all debtors in California seeking to
exempt specified property from enforcement of a monetary
judgment (the "704 exemptions"). The bill would also
significantly increase the homestead exemption that is available
to all judgment debtors.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Delayed FTB tax collection* $1,100 $1,500
$1,400General
Debt collection costs Unknown; dependent on the length of
General
time required to receive full payment
Update homestead Minor, absorbable costs to Judicial
Council General**
exemption rates to update and post rates on their website
*Delayed tax collections of $200 in 2010-11 (for revenue accrued
back one year)
**Trial Court Trust Fund
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STAFF COMMENTS: SUSPENSE FILE.
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 creditor's claims. Individuals filing bankruptcy in
California can choose between two different sets of exemptions:
the 703 exemptions or the 704 exemptions.
AB 929 (Wieckowski)
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The "703 exemptions," located in Code of Civil Procedure Section
703.140(b), consist of eleven categories that are modeled after
federal bankruptcy law. Those exemptions include a "wildcard"
exemption of up to $23,250 that may be applied to any property.
That application is important for those individuals who have
little or no equity in a home.
In comparison, the "704 exemptions," contained in Code of Civil
Procedure Section 704, provide 21 different types of exemptions
that protect a wider range of property but do not include a
"wildcard" exemption to cover unlisted property. The homestead
exemption 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. It
should also be noted that 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 would revise and recast the 703 exemptions so that the
exemption language generally mirrors the corresponding 704
exemptions for various assets and would increase the dollar
amount of the exemption for a debtor's interest in motor
vehicles, household furnishings, jewelry, and tools/professional
equipment.
Existing law provides that a person or family unit may protect a
specified portion of the value of their principal dwelling
(homestead) from being sold pursuant to a court order to satisfy
a debt to creditors. This bill would significantly increase the
existing homestead exemptions as follows:
From $75,000 to $150,000 for the base exemption;
From $100,000 to $250,000 for married individuals; and
From $175,000 to $350,000 for individuals aged 65 or
older, disabled, or age 55 or older with limited income.
The limits were last adjusted in 2009, when the above exemptions
were raised from $50,000, $75,000, and $150,000, respectively.
Under current law, the Judicial Council, on April 1, 2013, and
at each three-year interval thereafter, is required 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 (CPI) for All
Urban Consumers and post the updated rates on their website. The
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Judicial Council has indicated there would be minor and
absorbable costs to adjust the homestead exemption limits as
required by this bill and post them on the website.
Fiscal revenues collected by the Franchise Tax Board (FTB) for
personal income tax Chapter 7 and Chapter 13 filings totaled
$11.6 million in 2009-10, and have increased to $18.7 million in
2010-11 (year to date). Due to the increase in the exemption
limits for motor vehicles, household furnishings, jewelry, and
tools/equipment, the FTB estimates the provisions of this bill
would reduce the amount of tax collections from bankruptcy cases
by approximately five percent annually. The impact of the
increased homestead exemption limits is estimated to be similar
in magnitude. This impact represents a delay, rather than a
loss, in tax collections, as FTB would have a lien in place to
collect the tax debts in full upon the eventual sale of the home
and/or assets. Further, FTB could collect unpaid debt by
garnishing wages and/or levying bank accounts. FTB estimates a
decrease in revenue due to delayed collections of $200,000 in
2010-11 (as revenue is accrued back one year), $1.1 million in
2011-12, $1.5 million in 2012-13, and $1.4 million in 2013-14.
Dependent on the length of time it takes to receive full payment
on the income tax debt, additional costs of an unknown amount
would also be incurred for collection costs associated with
retaining the account in inventory, maintaining current
information, finding assets, and contacting the taxpayer.
Prior Legislation. AB 1046 (Anderson) 2009 was related to this
measure and increased the homestead exemptions to their current
levels and requires the Judicial Council, on April 1, 2013, and
at each three-year interval thereafter, to submit to the
Legislature the amount by which the homestead exemptions may be
increased based on the change in the annual CPI for All Urban
Consumers.