ASSEMBLY BILL NO 2416 (TORRICO)



SB 308 (Wieckowski)

Ensuring Fairness in Bankruptcy

PROBLEM

State law does not leave many debtors with enough to recuperate from their bankruptcy. The public policy reason for allowing people to file bankruptcy is to both provide the debtor with relief from crippling debt so that she may get a fresh start and to pay out creditors for some of the debt owed. In a bankruptcy, the debtor must turn over nearly all her items of value and they are sold to pay off creditors. The law allows the debtor to keep a small sum of money or certain physical items if they’re under a certain value. The policy goal for this is to ensure that the debtor is not left with so little that she cannot pick herself up and recover from the bankruptcy.

EXISTING LAW

California debtors must select between two code sections when determining which exemptions they are permitted: They are referred to as the "703 exemptions" and "704 exemptions." Many sections California's bankruptcy provisions have been untouched since their enactment. The California bankruptcy exemptions detail the property one can exempt or protect from creditors when filing bankruptcy in the state. A debtor may exempt any property that falls into one of the exemptions categories up to the dollar amount listed. A debtor will usually be able to keep this exempted property after the bankruptcy. Most debtors who own a home and have some equity in their home will opt for the 704 exemptions, while non-homeowners will typically select the 703 exemptions.

Upon filing, the court will assume legal control of the debts and property not covered by the exemptions. The court appoints a trustee to the case . The trustee's job is to try to get the creditors paid as much as possible. The trustee thoroughly reviews the debtor's assets and the exemptions claimed and can challenge any element of the case.

SUMMARY

SB 308 allows debtors to retain more money, and in some cases their family home. This means they will have a much better shot at becoming self-sufficient again, avoiding assuming more bad debt, avoiding filing for bankruptcy again or becoming dependent on public assistance.

Preserving Employment Law Claims: Bankruptcy trustees currently take over debtor's lawsuit, settle it for whatever amount they decide and use that money to pay off a debt. A person who has been sexually harassed, racially discriminated against, retaliated against for being a whistleblower or has been denied her wages should not have to give up her claim to a creditor because she is in financial straits.

Deleting Homestead Reinvestment Requirement: Currently, a debtor who has sufficient equity in her home & is able to use a homestead exemption, can keep that money only for a short period of time after the trustee sells her home: Current law requires the person just coming out of a bankruptcy to reinvest that money into another property within 6 months, or else the trustee can seize all that money the person had invested in her prior home! Freddie Mac and Fannie Mae won’t even lend to most people until 3 years after a bankruptcy. Furthermore, many people trying to get back on track from a bankruptcy could really use that homestead exemption money for rent, and other essential living and medical expenses.

Raising the Homestead Exemption: The current exemptions are so low that practically no one living in California would be able to keep his home from being sold. We are only a few years past the housing crisis, but the median home price in California is already $420,000. This bill increases the homestead exemptions to $100,000, $150,000 for married people and $300,000 for the elderly or disabled. SB 308 will help prevent the forced sale of many Californians’ homes by an unsecured creditor. Not selling a house out from under people to pay off an unsecured debt promotes the correct public policy of encouraging Californians to invest in their homes.

SUPPORT

AARP

Alameda County Democratic Central Committee

Alex Rooker, First Vice Chair of the California Democratic Party

Attorney General Kamala Harris

Berryessa-North San Jose Democratic Club

California Labor Federation

California Professional Firefighters

Dean Democratic Club of Silicon Valley

East Bay Community Law Center / Public Good

Eric Bauman, Chairman of the Los Angeles Democratic Party

National Consumer Bankruptcy Attorneys

Public Counsel

Silicon Valley Asian Pacific American Democratic Club

Silicon Valley Young Democrats

South Bay Labor Council

State Treasurer John Chiang

Tri-Cities Democratic Forum

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