BILL ANALYSIS �
AB 1853
Page 1
Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1853 (Wieckowski) - As Amended: May 19, 2014
Policy Committee: JudiciaryVote:7-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
The bill establishes additional exemptions for debtors and
deletes the homestead reinvestment requirement. Specifically,
this bill:
1)Deletes provisions requiring the debtor to reinvest proceeds,
from the voluntary sale of a homestead, into a new dwelling
within six months, or lose the exemption for those proceeds.
2)Adds the following additional exemptions for debtors:
a) Vacation credits, or accrued or unused vacation pay,
sick leave or family leave.
b) A cause of action regarding the violation of any law
relating to the judgment debtor's employment.
c) An award of damages or settlement arising out of an
employment law violation, to the extent an exemption is
necessary for the support of the debtor and the debtor's
spouse and dependents.
d) Up to $5,000 in aggregate interest in cash or deposit
accounts for a judgment debtor engaged in business.
3)Provides that a declaration of bankruptcy or status as a
debtor in bankruptcy shall not be treated as a default on a
car loan.
4)Increases the debtor's exemption, for interest in one or more
vehicles, from $4,800 to $6,000.
FISCAL EFFECT
Due to the expansion of exemptions available to debtors, the FTB
AB 1853
Page 2
estimates that the state, as a creditor in some bankruptcy
cases, would incur the following revenue losses: $60,000 in
2014-15, $270,000 in 2015-16, and $450,000 annually thereafter.
COMMENTS
1)Background . This bill seeks a number of changes to California
laws that collectively permit debtors to exempt various types
of property, in specified amounts, from enforcement of a money
judgment. 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 creditors.'"
(Exemptions Under the Bankruptcy Code: Using California's New
Homestead Law as a Medium for Analysis. 72 California Law
Review 922 (1984).)
2)Eliminating the Homestead Reinvestment Requirement . The
purpose of exempting the proceeds of the sale of the homestead
property from creditors for six months is generally to allow
the debtor to substitute one home for another without losing
the exemption. (See, e.g., Ortale v. Mulhern (1976) 58
Cal.App.3d 861.) According to the author, the six-month
reinvestment rule should be repealed because it fails to take
into account that many debtors coming out of a bankruptcy are
not able to secure financing for another home so quickly,
particularly when the six-month period overlaps with the
period that the debtor is going through the bankruptcy
process. By removing this requirement, the author contends,
debtors who have experienced a forced sale of their home may
be better off if they could use the proceeds from the
homestead exemption for other essential living expenses,
rather than having no option other than to reinvest those
funds in another home within six months.
3)Exemption of Vacation Credits and Vacation Pay . According to
AB 1853
Page 3
proponents of the bill, vacation time is not time that can be
cashed in for most employees, but existing law nevertheless
allows a bankruptcy trustee to keep the case open indefinitely
and, when the debtor is eligible to take vacation time, then
demand that pay received for that time is turned over. The
author contends that requiring a debtor to lose their accrued
vacation time or vacation credits in order to satisfy a debt
is simply unconscionable and bad public policy.
4)Opposition . The author's recent amendments addressed several
concerns of the California Bankers Association. The parties
have agreed to continue working on a few remaining issues.
5)Prior Legislation . Last year, AB 198 (Wieckowski), which
included similar provisions but included additional
exemptions, was held on this committee's Suspense file.
AB 929 Wieckowski/Statutes of 2012, increased the dollar
amount of the exemptions for a debtor's interest in motor
vehicles, jewelry, and implements, professional books, or
tools of the trade of the debtor or the debtor's dependent,
and also increased the amount of the homestead exemption for
persons 55 years of age or older who meet specified low-income
criteria.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081