BILL ANALYSIS �
AB 1388
Page 1
Date of Hearing: April 12, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1388 (Wieckowski) - As Amended: March 14, 2011
As Proposed to Be Amended
SUBJECT : EARNINGS WITHHOLDING ORDERS: CLAIM OF EXEMPTION
KEY ISSUE : AT A COURT HEARING TO DETERMINE A JUDGMENT DEBTOR'S
CLAIM OF EXEMPTION FROM WAGE GARNISHMENT PURSUANT TO A VALID
EARNINGS WITHHOLDING ORDER, SHOULD THE COURT BE ABLE TO GRANT
THE EXEMPTION IN CASES WHERE THE UNDERLYING DEBT WAS INCURRED
FOR MEDICAL CARE OR HOSPITAL SERVICES RENDERED TO THE JUDGMENT
DEBTOR OR HIS FAMILY?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
According to the author, the working poor in California remain
at risk of falling into hunger and homelessness when they are
unable to pay medical bills because existing case law
effectively prevents a judgment debtor from obtaining an
exemption from wage garnishment for that portion of his earnings
needed for the support of the debtor and his family (aka
"hardship exemption") when the underlying debt was incurred for
medical care for the debtor or his family. As proposed to be
amended, this bill seeks to make the hardship exemption from
wage garnishment available to a judgment debtor where the
underlying debt was incurred for medical care or hospital
services. Under the bill, the judgment debtor is not
permanently relieved of any portion of the underlying medical
debt. Instead, the bill allows the court in medical debt cases
to consider the debtor's claim that his current financial
hardship requires a certain portion of his wages to be exempted
from wage garnishment for the support of the debtor and his
family, and allows the court to exercise its existing authority
to fashion a partial payment plan or otherwise modify the terms
of the earnings withholding order. Several legal service
providers for low-income clients support the bill, contending
that the exemption should be available in cases of medical debt
because, among other reasons, medical debt is often involuntary
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or may be caused in large part by the improper actions of
others. The bill is opposed by the California Association of
Collectors, who contends it would promote financial
irresponsibility and enable judgment debtors to avoid
accountability for purchases where there is no dispute about the
underlying debt.
SUMMARY : Allows the court to grant a judgment debtor's claim of
exemption from wage garnishment in cases where the underlying
debt was incurred for medical care or hospital services rendered
to the judgment debtor or his family. Specifically, this bill
provides that the term "common necessaries of life" does not
include hospital services or medical care, for the purpose of
determining whether a specified exception applies that would
prevent the judgment debtor from successfully claiming the
statutory exemption from levy of the portion of the judgment
debtor's earnings that he proves is necessary to support himself
and his family.
EXISTING LAW :
1)Provides that service of an earnings withholding order creates
a lien upon the earnings of the judgment debtor that are
required to be withheld pursuant to the order and upon all
property of the employer subject to the enforcement of a money
judgment in the amount required to be withheld pursuant to
such order. Also provides that the lien continues for a
period of one year from the date the earnings of the judgment
debtor become payable unless the amount required to be
withheld pursuant to the order is paid as required by law.
(Code of Civil Procedure Section 706.029. Unless stated
otherwise, all further statutory references are to this code.)
2)Specifies the procedural requirements by which a judgment
debtor may claim an exemption from the earnings withholding
order, and by which a judgment creditor may contest a claim of
exemption in order to obtain a court hearing to evaluate the
merit of the claim. (Section 706.105, (a) to (f).)
3)Provides that the amount of earnings of a judgment debtor
exempt from the levy of an earnings withholding order, except
as specified, shall be that amount that may not be withheld
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from the judgment debtor's earnings under federal law in
Section 1673(a) of Title 15 of the United States Code.
(Section 706.050.)
4)Provides that the maximum part of the aggregate disposable
earnings of an individual for any workweek which is subject to
garnishment may not exceed 25 per centum of his disposable
earnings for that week, or the amount by which his disposable
earnings for that week exceed thirty times the Federal minimum
hourly wage in effect at the time the earnings are payable,
whichever is less. (15 U.S.C. � 1673.)
5)Exempts from levy, with certain categorical exceptions, the
portion of a judgment debtor's earnings which the judgment
debtor proves is necessary for the support of the judgment
debtor or his or her family supported in whole or in part by
the judgment debtor. (Section 706.051(b).)
6)Provides that the above exemption is not available if any of
the following exceptions applies:
a) The debt was incurred for the common necessaries of life
furnished to the judgment debtor or the family of the
judgment debtor.
b) The debt was incurred for personal services rendered by
an employee or former employee of the judgment debtor.
c) The order is a withholding order for support to collect
delinquent amounts payable under a judgment for the support
of a child, or spouse or former spouse, of the judgment
debtor.
d) The order is a state tax order, governed by Article 4
(commencing with Section 706.070.) (Section 706.051(c).)
7)Provides that hospital services rendered to a judgment debtor
or his or her family constitute a "common necessary of life"
for which the debtor is not entitled to exemption from levy or
earnings withholding pursuant to Section 706.051. ( J.J.
MacIntyre Co. v. Duren (1981) 118 Cal.App.3d Supp. 16.)
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COMMENTS : According to the author, the working poor in
California remain at risk of falling into hunger and
homelessness when they are unable to pay medical bills because
existing case law effectively prevents a judgment debtor from
obtaining an exemption from wage garnishment for that portion of
his earnings needed for the support of the debtor and his family
when the underlying debt was incurred for medical care for the
debtor or his family. This bill seeks instead to make this
exemption from wage garnishment available to a judgment debtor
where the underlying debt was incurred for medical care or
hospital services. Under this bill, the judgment debtor is not
permanently relieved of any portion of the underlying medical
debt. Instead, this bill allows the court in medical debt cases
to consider the debtor's claim that his current financial
hardship requires a certain portion of his wages to be exempted
from wage garnishment for the support of the debtor and his
family, and allows the court to exercise its existing authority
to fashion a partial payment plan or otherwise modify the terms
of the earnings withholding order.
Claiming an Exemption from Wage Garnishment: A Procedural
Background . Under the Wage Garnishment Law, service of an
earnings withholding order (EWO) creates a lien upon the
earnings of the judgment debtor that are required to be withheld
and in the specified amount to be withheld pursuant to the
order. (Section 706.029.) If no prior hearing has been held
with respect to the EWO (or there has been a material change in
circumstances since the time of the last prior hearing), then
the judgment debtor may claim an exemption from the EWO by
filing a claim of exemption and financial statement (both are
Judicial Council-approved forms) with the levying officer.
(Section 706.105(a)-(b).) On the claim of exemption form, the
debtor attests that he needs either all or a specified portion
of his earnings to support himself or his family. On the
financial statement, the debtor provides a detailed account of
his income and expenses that support his claim that the court
should approve an exemption. (Judicial Council Form WG-006.)
Existing law requires a judgment creditor who desires to contest
a claim of exemption to file a notice of opposition to the claim
of exemption within 10 days after the required notice of claim
of exemption has been mailed to the creditor. (Section
706.105(d).) If the judgment creditor files this notice of
opposition with the levying officer within the 10-day period,
the judgment creditor is entitled to a hearing on the claim of
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exemption, as specified. (Section 706.105(e).) If, however,
the levying officer does not receive a notice of opposition to
the claim of exemption within the 10-day period, then the EWO
will effectively be terminated or modified, depending on the
particular claim of exemption made by the judgment debtor. For
example, if all of the judgment debtor's earnings were claimed
to be exempt, the levying officer shall serve the employer with
a notice that the EWO has been terminated. If only a portion of
the judgment debtor's earnings was claimed to be exempt, then
the levying officer shall serve a modified EWO that reflects the
amount of earnings claimed to be exempt. (Section 706.105(f).)
Because the EWO is either terminated or modified according to
terms proposed by the judgment debtor when the claim of
exemption is unopposed, current law provides an incentive to the
judgment creditor to file a notice of opposition-thus triggering
a hearing where the court shall determine the merit of the
judgment debtor's claim of exemption. Not surprisingly,
according to the author, creditors oppose the claim of exemption
"nearly 100% of the time."
Stated Need for the Bill. According to the author, this bill is
needed to address consequences suffered by the working poor that
stem from case law interpreting Section 706.051(c) of the Code
of Civil Procedure. That statute provides that an exemption
from wage garnishment for the support of a judgment debtor and
his family "is not available if...�t]he debt was incurred for
the common necessaries of life (emphasis added) furnished to the
judgment debtor or the family of the judgment debtor." The
author states:
This is an antiquated provision first enacted during
the Depression. Unfortunately, in J.J. MacIntyre Co.
v. Duren (1981) 118 Cal.App.3d Supp. 16, a court
classified medical debt as a "common necessary of
life." As a result, debtors cannot �successfully] file
Claims of Exemption from garnishments and levies that
stem from medical bills. This leads to the perverse
situation in which someone who runs up a huge gambling
debt at a casino can escape having his wages garnished,
but a debtor taken to the �emergency room] after a car
accident will lose 25% of her wages until the medical
bill is paid. For low-income workers, medical debt can
quickly turn into homelessness and hunger. This is
especially cruel because medical debts are often the
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least voluntary of debts: no one chooses to fall ill.
With budget cuts to Medi-Cal, Healthy Families,
Indigent Care, and nearly all other health-related
programs, many more of the working poor are going to
have medical bills, especially emergency room bills.
�This bill] will not erase anyone's medical debt. It
will simply provide for more reasonable repayment
options to be negotiated or for repayment to be delayed
until it no longer means disaster for the debtor's
family.
Statutory Interpretation of Section 706.051 and "Common
Necessaries of Life." Subdivision (b) of Section 706.051
continues the hardship exemption from wage garnishment that has
existed, in one form or another, since at least 1933 and
possibly much earlier. (See Former Section 690.6 added by
Stats. 1935 c.723, derived from Former Section 690, enacted in
1872.) The basic theory of providing an exemption of wages
necessary for use of a judgment debtor's family is that the
debtor and his family, regardless of the debtor's improvidence,
will retain enough money to maintain a basic standard of living
in order that the debtor may have a fair chance to remain a
productive member of the community. (Perfection Paint Products
v. Johnson (1958, Cal App 1st Dist) 164 Cal App 2d 739.) In
addition, statutes exempting property from execution should be
fairly and liberally construed and, as far as practicable,
beneficially to the debtor. (Van Lue v. Wahrlich-Cornett Co.
(1910) 12 Cal App 749.) In examining the legislative intent
behind the exemption, the court in White v. Gobey (1933) held
that "necessities, then, used for the very maintenance of the
debtor's family, for food, clothing and the like, are what the
legislature meant to make special provision for." (130 Cal.
App. Supp. 789, 792.)
Subdivision (c) specifies exceptions to the hardship
exemption-cases where the exemption is not allowed even though
the judgment debtor can show the necessity for exempting all or
part of his earnings. The first such exception provides that an
exemption from wage garnishment for the support of a judgment
debtor and his family is not available if "the debt was incurred
for the common necessaries of life furnished to the judgment
debtor or the family of the judgment debtor." In Los Angeles
Finance Co. v. Flores (Cal. App. Dep't Super. Ct. 1952), the
court, in ascertaining legislative intent behind the exception
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for "common necessaries of life" concluded that "obviously, the
Legislature, cognizant of the fact that to the great majority of
persons supporting a family the earnings of the past 30 days are
required for such basic things as food, heat, shelter, etc.
(common to all), desired to make sure that these earnings shall
not be taken to pay for something less basic." (110 Cal. App.
2d Supp. 850, 856.)
According to the Committee's research, J.J. MacIntyre Co. v.
Duren (1981) 118 Cal.App.3d Supp. 16 is the first case that
explicitly holds that medical care or hospital services
constitute a "common necessary of life" for the purpose of
determining whether the exception (currently articulated by
Section 706.051(c)(1)) should apply to disallow the hardship
exemption. In that case, the Appellate Department of the
Superior Court of Los Angeles County held that the defendant was
not entitled to an earning exemption because "the underlying
debt was an assigned bill for hospital services rendered to the
defendant or his family . . . �which] is a common necessary of
life." (118 Cal.App.3d Supp. 16, 19.) The court also stated
"the term 'common necessaries of life' . . . means essentials
commonly required by all persons for the sustenance of life,
whatever their employment status and includes medical care."
(Id. at 19.)
Legal service attorneys contacted by the Committee report that
when judgment creditors file a notice of opposition to the claim
of exemption in medical debt cases, they typically cite CCP
706.051 (c)(1) and the J.J. MacIntyre decision as the basis for
which the claim of exemption should be denied by the court.
Recent scientific research indicates an increasing percentage of
bankruptcy filings are associated with illness and medical
bills. In a 2009 study published in the American Journal of
Medicine, Harvard researchers surveyed a random national sample
of 2314 bankruptcy filers in 2007, abstracted their court
records, and interviewed 1032 of them. Debtors were designated
as "medically bankrupt" if they: (1) cited illness or medical
bills as a specific reason for bankruptcy; OR (2) reported
uncovered medical bills greater than $1000 in the past two
years; OR (3) lost at least 2 weeks of work-related income due
to illness or injury; OR (4) mortgaged a home to pay medical
bills.
Using these criteria, the researchers found that illness or
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medical bills contributed to 62.1% of all bankruptcies, and in
92% of these "medical bankruptcies," the debtor had a medical
debt over $5000, or 10% of pretax family income. Furthermore,
in comparing this data with the results from a previous 2001
study employing identical methodology, the researchers were able
to determine that the share of bankruptcies attributable to
medical problems rose by 49.6% from 2001 to 2007, and that after
controlling for demographic factors, the odds that a bankruptcy
had a medical cause were 2.38 fold higher in 2007 than in 2001.
(Himmelstein D., Thorne D., et al. Medical Bankruptcy in the
United States, 2007: Results of a National Study. American
Journal of Medicine, Vol. 122, No. 8, August 2009.)
This bill does not discharge the underlying medical debt, but
allows the court to consider an exemption in medical debt cases.
As proposed to be amended, this bill would preserve the
existing exception to the hardship exemption for "common
necessaries of life," except that it would exclude hospital
services and medical care from statutory construction of that
term as a matter of law. In effect, this bill would permit but
not require the court to grant a judgment debtor's claim of
exemption from wage garnishment in cases where the underlying
debt was incurred for medical care or hospital services rendered
to the judgment debtor or his family. The bill does not affect
the right of a debtor to file a claim of exemption, nor of a
creditor to file a notice of opposition to the claim to obtain a
court hearing to decide the matter.
Under this bill, the judgment debtor will still have to submit a
detailed financial statement to demonstrate the portion of his
earnings that he contends should be exempt from garnishment for
the necessary support of his family. The court will still have
to determine the merit of the judgment debtor's claim of
exemption, but it would allow approval of the claim in cases of
medical debt where the court is currently constrained by the
J.J. MacIntyre decision. Importantly, this bill does not
discharge the underlying debt. Regardless of whether the court
approves the claim of exemption or not, the underlying judgment
is still valid and can be collected in the future, including
interest.
Proposed Author's Amendments : In order to more narrowly focus
the measure to make available a claim of exemption in medical
debt cases, the author proposes the following amendments so that
Section 706.051 reads as follows:
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706.051.
(a) For the purposes of this section, the following shall apply .
(1) "Family of the judgment debtor" includes the spouse or
former spouse of the judgment debtor.
(2) "Common necessaries of life" does not include hospital
services or medical care.
(b) Except as provided in subdivision (c), the portion of the
judgment debtor's earnings which that the judgment debtor
proves is necessary for the support of the judgment debtor or
the judgment debtor's family supported in whole or in part by
the judgment debtor is exempt from levy under this chapter.
(c) The exemption provided in subdivision (b) is not available
if any of the following exceptions applies:
(1) The debt was incurred for the common necessaries of
life furnished to the judgment debtor or the family of the
judgment debtor.
(2) The debt was incurred for personal services rendered by
an employee or former employee of the judgment debtor.
(3) The order is a withholding order for support under
Section 706.030.
(4) The order is one governed by Article 4 (commencing with
Section 706.070) (state tax order).
ARGUMENTS IN SUPPORT : Supporters of the bill, including several
legal service providers for low-income clients, contend that the
exemption should be available in cases of medical debt because,
among other reasons, medical debt is often involuntary or may be
caused in large part by the improper actions of others. They
cite a 2004 report published by the Health Consumer Alliance of
California ("Sick and In Debt") that documents cases of how many
consumers landed in medical debt through no fault of their own
or through the improper actions of others. In support of the
bill, Western Center on Law and Poverty states:
Under AB 1388 these harsh outcomes on families can be
partially limited. While families would still be
responsible for debt they owe (even if unfairly
incurred), they could not have their income taken by a
medical debt collector. Instead the debt collector will
have to negotiate with the family to establish a
repayment method. This gives the family the final
decision on how their earnings are to be spent and to
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ensure that families can take care of the basic
necessities of life.
ARGUMENTS IN OPPOSITION : The California Association of
Collectors (CAC) opposes the March 14 version of this bill,
stating:
This bill would repeal the exemption that bars debtors
from filing a claim of exemption where a judgment is
obtained based upon a bill where the debtor doesn't pay
for a necessary of life. This bill will be
counterproductive for consumers because it will have
the effect of making small business and other providers
of goods and services less willing to extend credit.
CAC must also oppose this legislation because it shifts
priorities from ensuring that those who take goods or
services are responsible for paying back those who
extended the services or provided the goods, and
instead says people are not responsible for paying for
what they have purchased. This bill applies to
situations where there is no dispute regarding the
underlying debt, there is a judgment already. Instead
it would seek to avoid accountability for those
purchases. At a time when we are trying to teach
people financial literacy and responsibility, this bill
goes in the wrong direction. It says to small business
people in your district, it is OK to take your
services, doctor, hospital, grocer, landlord, and you
should not be paid.
As previously noted, this bill does not seek to discharge the
underlying judgment debt. Judgment debtors ultimately would
still be responsible for paying for what they have purchased, as
is true under existing law. The exemption at issue here acts
only to protect from garnishment that portion of the judgment
debtor's earnings that are necessary to support the debtor and
his family for the statutory lien period created by the EWO, not
to excuse the debt itself.
Furthermore, as proposed to be amended, this bill no longer
deletes the "common necessaries of life" exception altogether,
and narrows the scope of the bill to address only cases of
medical debt. Therefore, the bill as proposed to be amended
would not apply to the provision of goods or services by grocers
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and landlords. It is not known whether the author's amendments
have sufficiently addressed the concerns of CAC to remove their
opposition.
REGISTERED SUPPORT / OPPOSITION :
Support
Western Center on Law and Poverty
California Rural Legal Assistance Foundation
Los Angeles Center for Law and Justice
Opposition
California Association of Collectors
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334