04/26/1995 01:17 PM House JUD

 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
 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.