Legislature(1995 - 1996)
04/26/1995 01:17 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 285 - AMOUNT OF HOMESTEAD AND OTHER EXEMPTIONS ROSETTA DEMOSKI, Legislative Secretary to Representative Carl E. Moses, introduced HB 285. HB 285 seeks to increase the current homestead exemption amount from $52,100 to $150,000, and it also clarifies the adjustment calculations addressed in AS 09.38.115. These are technical corrections necessary for the Department of Labor. HB 285 would allow homeowners under bankruptcy proceedings to maintain the equity of their homes by increasing homestead exemption. Increasing the exemption to $150,000 protects the homeowners equity from creditors upon liquidation of their assets. HB 285 also clarifies the method of processing the bankruptcy exemption amount, and requires the Department of Labor to adopt a regulation announcing the changes in the dollar amounts. This bill amends AS 09.38.115 of the Exemptions Act to reference the annual average consumer price index. It changes the amount used in the calculation to the most recent year the amount of the exemption is established or amended by legislation. Currently, the adjustments made are referencing January of 1982, as a reference base. She said Arbe Williams, Director, Division of Administrative Services, Department of Labor, and Chris Miller were in attendance to answer questions on any of the technical changes or corrections to the section. MS. DEMOSKI explained that the reason for the homestead laws is for preservation of the family farm, home, or other assets in the face of severe economic conditions. In each case, the property that may be homesteaded is designed to perpetuate the family's estate, and to improve its chances for survival in hard times. The homestead provides a back-up form of insurance against an unexpected catastrophe. Many will argue that homestead law is our way of sheltering assets. That is not what has motivated this legislation. There are people who outright own their homes. HB 285 only adds additional security. In cases of bankruptcy, this will simply protect someone from losing their primary residence. On behalf of Representative Moses, she requested support in passing this legislation. SHARON KELLY, President, Alaska Credit Union League, Alaska State Employees Federal Credit Union, testified against HB 285. In previous legislation, they supported efforts to actually reduce the homestead exemption. A lower exemption amount creates a better balance between the right of debtors and creditors. Public policy that limits and discourages bankruptcy is important to assure consumer credit is available to those at a reasonable price. This bill reverses the efforts of the Eighteenth Legislature to lower the exemptions, but on a national level, there was abuse in the bankruptcy system. Just last year, Congress approved bankruptcy reform. The current federal exemption was just increased to $15,000. She did not understand the logic behind increasing this to ten times what the federal exemption is. A person that declares bankruptcy can make a choice between the federal or the state exemption amount. MS. KELLY stated that the homestead exemption relates to the amount of home equity a borrower can protect under bankruptcy. If a debtor is headed toward bankruptcy and has a large amount of equity in his home, he can protect his credit by taking out a second deed of trust and paying off those creditors. We do not understand the logic of allowing a person who is going bankrupt to keep this $150,000. We do believe creditors should be entitled to take the home away from a debtor. Credit unions are member owned financial cooperatives. If loan losses are increased, which this piece of legislation could possibly do, it is going to cost all of our members more money. It is going to increase interest rates and lower their dividends. Credit unions in Alaska have a long history of working with our members who are experiencing temporary financial hardship. At the same time, it is important that the legal system provide effective avenues for recourse to collect from those who have the capacity to repay. By increasing the exemption amount, this proposal is inviting abuse and over time will raise the cost of credit to all the borrowers. The Alaska Credit Union League is our trade association for Alaska's 17 credit unions. We represent 300,000 people in the state of Alaska and we are a primary source of consumer loans. Number 370 JERRY WEAVER, Senior Vice President, Commercial Bank Loans, National Bank of Alaska, spoke in opposition to HB 285. He was speaking for the Alaska Bankers Association as well. This legislation does nothing but send the wrong message to debtors that Alaska is one of the few states that offers an incentive for a debtor to convert his/her nonexempt assets to cash, but what we are talking about is if a debtor does have cash in a large house, would be (indisc.) creditors. There was a "60 Minutes" coverage where a multi-million dollar estate was purchased in Florida with the exclusive design of denying creditors any chance to recover their money. Alaska does not want to be in that league. Alaska's present homestead exemption of $62,500 is already among the more liberal of all the states. This is basically a rich man's bill. Number 450 MARILYN MAY, Assistant Attorney General, Collections and Support, Civil Division, Department of Law, testified against HB 285. She is the supervisor of collections and support section, which, among other things, collects unsecured debts owed to the state. She had spoken with other attorney generals who do collection work for the state and there is unanimous opposition to this bill. Anything that goes beyond protecting a debtor from destitution is really taking money out of the creditor's pocket. Any benefit you give to the debtor serves as a direct penalty to the creditor who, in some cases, may be in worse financial condition than the debtor. There may be situations where a creditor may wind up losing his house because the debtor had their assets tied up in a house that the creditor cannot get to. This bill invites abuse. There was a discussion on whether or not the debtor should or even could qualify for a home equity loan to pay off their debts, rather than declaring bankruptcy and sheltering their assets. MS. KELLY stated that they probably would loan money to people to pay their debts since it would be a secured loan, and that would provide them with collateral. MS. MAY commented that the reality is that in many or most cases, if she is trying to collect a $50,000 fine, she would probably not look beyond the value of the home. REPRESENTATIVE FINKELSTEIN had no idea this homestead exemption existed. He said this is an amazing protection. REPRESENTATIVE TOOHEY said in the olden days, we used to pay off the house so that you could never lose it. This is a generation gap issue. REPRESENTATIVE DAVIS pointed out that if there are people who have their homes paid off, they would be worth more than $62,000. She understood that your home should be protected beyond bankruptcy. She thought your home could not be taken from you, but it says here that it can. CHAIRMAN PORTER said we have kind of mixed apples and oranges in this discussion. This would allow the attachment of a house and the lien on the house, but it presumes the person is not in bankruptcy. For example, if he fell behind in his house payments and they threatened to take away his house, and he filed bankruptcy the next day; whether or not the exclusion for his house within the bankruptcy law applies or not, he just would not know. MS. DEMOSKI understood that if you were to declare bankruptcy, they could not touch your home if it was worth $150,000. They would either give you a check for $150,000 so you can buy another home. The whole point is to protect your home, if someone actually does own their home, like people in retirement on a fixed income. REPRESENTATIVE DAVIS felt that there were too many questions that needed to be answered on this bill, or some other work done to it. She felt it may be better not to move HB 285 at this time. CHAIRMAN PORTER said that without being sure of the bankruptcy requirements, and the two attorney generals who testified are not quite sure either, if other committee members feel it appropriate, he would like to get answers to the bankruptcy issue. REPRESENTATIVE TOOHEY agreed. CHAIRMAN PORTER announced that the bill would be held over. He then left the House Judiciary Committee meeting to go to the House Finance Committee hearing. Representative Joe Green took over the meeting as Vice Chairman.