BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 929|
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THIRD READING
Bill No: AB 929
Author: Wieckowski (D)
Amended: 3/31/11 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 6/14/11
AYES: Evans, Corbett, Leno
NOES: Harman, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
ASSEMBLY FLOOR : 54-21, 5/19/11 - See last page for vote
SUBJECT : Debtor exemptions: bankruptcy
SOURCE : Author
DIGEST : This bill revises and expands 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
significantly increases the homestead exemption that is
available to all judgment debtors.
ANALYSIS : Existing law provides that in a case under
CONTINUED
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Title 11 of the United States Code (relating to
bankruptcy), all of the exemptions, 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. The Section 703.140(b) exemptions may be
elected in lieu of all other available exemptions, as
specified. (Code of Civil Procedure Section 703.140 (a).)
Existing law, the 703 exemptions, provide for eleven
categories of 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 $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.
The debtor's interest, not to exceed $2,775 in value, in
one motor vehicle.
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.
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.
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. (Code of Civil Procedure Section
703.140(b).)
Existing law, the 704 exemptions, specify 21 different
types of property and the conditions under and amount of
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which a debtor may claim an exemption from enforcement of a
money judgment. (Code of Civil Procedure Sections 704.010
through 704.210.)
Existing law requires the Judicial Council to adjust the
above dollar amounts 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. (Code of Civil Procedure Section
703.150.)
This bill revises and recast the following 703 exemptions
so that the exemption's language generally mirrors the
corresponding 704 exemption:
The exemption for household furnishings, household goods,
wearing apparel, appliances, books, animals, crops, or
musical instruments.
The exemption for unmatured life insurance contracts.
The exemption for a cause of action for wrongful death,
or an award of damages or a settlement rising out of
wrongful death.
The exemption for a cause of action for personal injury,
or an award of damages or a settlement rising out of
personal injury.
The exemption for unemployment compensation payments.
The exemption for a cemetery plot for the debtor and the
spouse of the debtor.
This bill revises and recast the following Section 703
exemptions so that they mirror corresponding Section 704
exemptions for specified property, but with an increase in
the dollar amount of the exemption:
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).
The exemption for the debtor's aggregate interest in
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jewelry, heirlooms, and works of art, not to exceed
$5,000 (an increase from $1,150 for jewelry only).
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).
This bill adds the following additional exemptions to
Section 703 that mirror corresponding Section 704
exemptions for the following property: (1) workers'
compensation benefits; (2) public aid or similar aid
provided by a charitable organization; (3) relocation
benefits for displacement from a dwelling, as specified;
(4) financial aid for higher education; (5) public
retirement benefits; (6) vacation credits; and (7) service
of earnings assignment orders for support, as specified.
Existing law, the California Constitution, requires the
Legislature to protect, by law, a certain portion of the
homestead and other property, from forced sale.
(California Constitution Article XX Sec. 1.5.)
Existing law contains both an automatic and a declared
homestead exemption that serve to protect a portion of
equity in a debtor's home from creditors. (Code of Civil
Procedures Sections 704.710 et seq., 704.910 et seq.)
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. (Code of
Civil Procedure Section 704.710.) A declared homestead
exemption applies, as specified, to a dwelling specified in
a recorded homestead declaration. (Code of Civil
Procedures Sections 704.910, 704.920.)
Existing law sets the amount of the homestead exemption as
follows:
$75,000, unless the judgment debtor or spouse of the
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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: (1) a person 65 years of age or older; (2) a
person physically or mentally disabled and as a result of
that disability is unable to engage in substantial
gainful employment, as specified; or (3) a person 55
years of age or older with a limited gross annual income,
as specified. (Code of Civil Procedure Section 704.730.)
Existing law 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 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. (Code
of Civil Procedure Section 703.150(c).)
This bill increases those exemptions to $150,000, $250,000,
and $350,000 respectively.
This bill, with respect to the third exemption, increases
the qualifying gross income for a person 55 years of age or
older from not more than $15,000 to $22,000, and, if
married, from not more than $20,000 to $29,000.
Comments
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. The concept behind
exemptions is to provide an individual with a minimum
amount of property and money that can be used to give
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him/her a "fresh start." 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 eleven categories that are
modeled after federal bankruptcy law. Those exceptions
include a "wildcard" exemption of up to $23,250 (consisting
of $1,175 plus the unused portion of the $22,075 homestead
exemption) 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 Sections
704.010 through 704.210, 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 revises, recasts, and expands the set of 703
exemptions to more closely resemble the 704 exemptions.
This bill also increases the amounts of exemptions for the
debtor's motor vehicle, "tools of the trade," and increase
the 704 homestead exemption that is available to all
judgment debtors, whether in bankruptcy or not.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14
Fund
Delayed FTB tax $1,100 $1,500$1,400 General
collection*
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Debt collection costs Unknown;
dependent on the length of General
time required to receive full payment
Update homestead Minor,
absorbable costs to Judicial
General**
exemption rates Council to update and post rates on
their Web site
*Delayed tax collections of $200 in 2010-11 (for revenue
accrued back one year)
**Trial Court Trust Fund
SUPPORT : (Verified 8/22/11)
California Labor Federation
Central California Legal Services
Peace Officers Research Association of California
OPPOSITION : (Verified 8/22/11)
California Bankers Association
National Association of Bankruptcy Trustees
ARGUMENTS IN SUPPORT : According to the author's office,
over the past few years of severe recession, Californians
have been increasingly forced to resort to bankruptcy.
Current exemptions under bankruptcy can leave debtors with
little left to start their lives over again. The
exemptions for tools of the trade, home equity, and
automobiles are currently insufficient.
This bill creates a more fair structure between debtors'
exemption options under bankruptcy. In particular, when
homeowners are at risk of losing their homes, the
exemptions should take into consideration the current home
values. Permitting debtors to both stay in their homes and
to keep such essential items as tools of their trade and an
automobile will allow Californians to retain sufficient
assets in order to get back on their feet, get back to
work, and recover from financial insolvency
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ARGUMENTS IN OPPOSITION : The California Bankers
Association opposes this bill and writes, "This bill
relating to bankruptcy exemptions, unless it is amended to
remove the dramatic increases to the homestead exemptions.
These exemptions were significantly increased on January 1,
2010; however your measure doubles these recently enacted
exemption levels. In addition, these increases are
unnecessary and circumvent a report from the Judicial
Counsel regarding a consumer price index recommended change
due by April 2013.
"In January 2010, California increased its homestead
exemption from $50,000 to $75,000 for a single person;
$75,000 to $100,000 for a family unit; and from $150,000 to
$175,000 for seniors and the disabled. Those increases
were accompanied by a mechanism for review every three
years by the Judicial Council of the homestead exemption
for increases due to inflation. The Judicial Council is
currently scheduled to provide its first review in April
2013. This bill circumvents this new statutory system by
doubling the recently increased homestead exemptions to
$150,000 for a single person, $250,000 for a family unit,
and $350,000 for seniors and the disabled. In 2010, only
three percent of all Chapter 7 cases filed identified
assets exceeding allowable exemptions, thereby permitting
bankruptcy trustees to compensate unsecured creditors. The
doubling of the homestead exemption proposed in AB 929
dramatically extends bankruptcy exemptions, shielding
hundreds of thousands in assets from recovery by creditors.
Unsecured creditors that will be negatively impacted by
the proposed doubling of the homestead exemption include
not only unsecured lenders, but also the State of
California, small business, medical providers, contractors,
and other entities that expect payment from the debtor.
For example, in 2010 California bankruptcy trustees made
priority claim payments under Chapter 7 asset cases to the
California Franchise Tax Board of approximately $37.5
million and $12.4 million to the State Board of
Equalization. While most taxes are not dischargeable under
bankruptcy law, the proposed doubling of the homestead
exemption in this bill impedes and delays the collection of
these tax debts to the state, imposing significant General
Fund pressures."
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ASSEMBLY FLOOR :
AYES: Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Cedillo,
Chesbro, Cook, Davis, Dickinson, Eng, Feuer, Fong,
Fuentes, Galgiani, Gordon, Hall, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jones, Lara,
Bonnie Lowenthal, Mendoza, Miller, Mitchell, Monning,
Pan, Perea, V. Manuel P�rez, Portantino, Skinner, Smyth,
Solorio, Swanson, Torres, Wagner, Wieckowski, Williams,
Yamada, John A. P�rez
NOES: Achadjian, Conway, Donnelly, Fletcher, Beth Gaines,
Garrick, Gatto, Grove, Halderman, Harkey, Jeffries,
Knight, Logue, Mansoor, Morrell, Nestande, Nielsen,
Norby, Olsen, Silva, Valadao
NO VOTE RECORDED: Alejo, Furutani, Gorell, Hagman, Ma
RJG:do 8/29/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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