Legislature(1999 - 2000)
04/18/2000 02:37 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE JUDICIARY COMMITTEE
April 18, 2000
2:37 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chairman
Senator Rick Halford, Vice-Chairman
Senator Dave Donley
MEMBERS ABSENT
Senator John Torgerson
Senator Johnny Ellis
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 296(L&C)
"An Act relating to partnerships; amending Rule 25(c), Alaska
Rules of Civil Procedure; and providing for an effective date."
-MOVED CSHB 296(L&C) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 369(JUD)
"An Act relating to property exemptions under the Alaska
Exemptions Act, including removal of the provisions for adjusting
the dollar amounts by referring to the consumer price index; and
providing for an effective date."
-HEARD AND HELD
SENATE BILL NO. 199
"An Act adopting the National Crime Prevention and Privacy
Compact; making criminal justice information available to
interested persons and criminal history record information
available to the public; making certain conforming amendments;
and providing for an effective date."
-SCHEDULED BUT NOT HEARD
CS FOR HOUSE BILL NO. 292(JUD)
"An Act adopting the National Crime Prevention and Privacy
Compact; making criminal justice information available to
interested persons and criminal history record information
available to the public; providing for the use of criminal
justice information and records by the Alcoholic Beverage Control
Board; making certain conforming amendments; and providing for an
effective date."
-SCHEDULED BUT NOT HEARD
PREVIOUS SENATE COMMITTEE ACTION
HB 296 - See Labor and Commerce Committee minutes dated 4/4/00.
HB 369 - No previous action to report.
WITNESS REGISTER
Mr. Pat Harman
Aide to Representative Kott
State Capitol Building
Juneau, Alaska 99801
POSITION STATEMENT: Presented HB 296 for the sponsor.
Mr. Arthur Petersen
350 North Franklin Street
Juneau, Alaska 99801
POSITION STATEMENT: Supports HB 296
Mr. John McCabe
Legislative Director for the Uniform Law Commissioners
Address not provided
Chicago, IL
POSITION STATEMENT: Testified on HB 296
Mr. John Manly
Aide to Representative Harris
State Capitol Building
Juneau, Alaska 99801
POSITION STATEMENT: Introduced HB 369
Mr. Steve Greer, Attorney
PO Box 24-2903
Anchorage, Alaska 99524
POSITION STATEMENT: Supports HB 369
Mr. William Wood, President and CEO
Tongass Federal Credit Union
2542 Tongass Avenue
Ketchikan, Alaska 99901
POSITION STATEMENT: Opposes HB 369
Ms. Annie Heffele
1751 Scottwood
Wasilla, Alaska 99654
POSITION STATEMENT: Opposes HB 369
Mr. Gary Sterton
Alps Credit Union
Box 1889
Sitka, Alaska 99835
POSITION STATEMENT: Opposes HB 369
Ms. Sharon Kelly, President
Alaska State Employees Federal Credit Union
240 Main Street
Juneau, Alaska
POSITION STATEMENT: Opposes HB 369
Mr. Win Gruening, Senior Vice President
Key Bank
234 Seward
Juneau, Alaska
POSITION STATEMENT: Opposes HB 369
Mr. Robert Crowther
Address not provided
Anchorage, Alaska
POSITION STATEMENT: Supports HB 369
Mr. Bob McFarland
Address not provided
Anchorage, Alaska
POSITION STATEMENT: Supports HB 369
Ms. Dee Ennis
Attorney
Address not provided
Anchorage, Alaska
POSITION STATEMENT: Supports HB 369
Mr. Thomas Yerbich
Address not provided
Anchorage, Alaska
POSITION STATEMENT: Supports HB 369
Ms. Nancy Usera, Senior Vice President
Alaska USA Federal Credit Union
PO Box 196613
Anchorage, Alaska 99519-6613
POSITION STATEMENT: Opposes HB 369
ACTION NARRATIVE
TAPE 00-23, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 2:37 p.m. Present were SENATOR HALFORD, SENATOR DONLEY
and CHAIRMAN TAYLOR. The first order of business to come before
the committee was HB 296.
HB 296-UNIFORM PARTNERSHIP ACT
MR. PAT HARMAN, legislative aide to Representative Pete Kott,
explained that HB 296 is a House Judiciary Committee bill that
will enact the Uniform Partnership Act in Alaska. The basis of
Alaska statutes regarding the Uniform Partnership Act go back to
1914; HB 296 brings that version up to date. HB 296 incorporates
the concept of the entity of a partnership, not the aggregate of
the individuals who are in the partnership. A business operating
under a partnership is a default classification; if a business
does not fall under another classification it will default to a
partnership. Many businesses are operating in Alaska today as
partnerships and do not know it.
Number 47
MR. ARTHUR PETERSEN, Uniform Law Commissioner, noted that the
National Conference of Commissioners on State Laws, the creators
of the original Uniform Partnership Act, is currently in its
109th year of existence. The old partnership act was enacted in
all states except Louisiana. In the United States, partnership
law is the law of the Uniform Partnership Act and the case law
interpreting it. HB 296 updates the 1914 version which Alaska
enacted in 1917. HB 296 includes the 1994 revision and the 1996
amendments (liability partnership provisions), and one amendment
made in 1997 that responds to a federal tax ruling.
MR. PETERSEN said HB 296 will put into statute the entity concept
of a partnership act. Current law is a confusing blend of the
aggregate of individuals concept and the entity concept. The new
version makes clear it is the entity concept that has
ramifications throughout the Act. It makes the law much simpler,
cleaner and conforms with what most people think of as a
partnership.
MR. PETERSEN stated HB 296 passed unanimously in the House and is
supported by the Department of Community and Economic
Development (DCED). DCED's concern about changing the annual
reporting requirement to a biennial one has been taken care of in
CSHB 296 (L&C). The Attorney General's office supports HB 296,
as does the business law section of the Alaska Bar Association.
Number 116
SENATOR HALFORD asked how limited liability of a partnership
works.
MR. PETERSEN asked to defer to Mr. John McCabe for an expert
professional opinion but he answered that a partnership is a
default concept that regulates what happens when a group of
people get together and form a business activity. The group can
then register in a civil act of registration to accomplish the
limited liability aspect and thus become a limited liability
partnership. Procedurally, that action requires registering with
DCED.
SENATOR HALFORD said two people who want to go into business
together, each owning 50 percent as operator/owner, have the
choice of forming as a partnership or a corporation. He asked
if general partners had the option of limited liability in the
past.
MR. PETERSEN answered that general partners did not have limited
liability.
SENATOR HALFORD asked if it is easier to maintain the shield of
limited liability in a limited liability partnership than it is
in a small corporation.
Number 146
MR. PETERSEN answered yes, and a limited liability partnership is
also simpler to form than a corporation.
MR. JOHN MCCABE, Legislative Director for the Uniform Law
Commissioners, explained that a general partnership under current
law and the new version of the Uniform Act is an entity in which
every partner will have joint and several liability with respect
to the partnership business. Partners are co-equal with regard
to their ability to manage the business and they are co-equal in
regard to the liability for the business. A creditor for a
partnership has the ability to charge the assets of any partner
in order to satisfy the liabilities of the partnership. Under HB
296 there will be several liabilities so that partners will be
able to gain co-satisfaction from their fellow partners unless
the partnership puts itself in a position to be a limited
liability partnership.
Existing statute has limited liability partnership provisions but
HB 296 is a somewhat simpler system. Alaska has regarded
limitation of liability as an artifact of registering something
in the public record so that third parties dealing with the
entity will be able to find out easily whether there is
limitation of liability or not. Under the new Uniform Act (the
1997 version) a partner will register a statement into public
record in the same way as a limited partnership, limited
liability company, or a corporation. Filing is a public
announcement that all of the partners have limitation of
liability. The limitation is in terms of vicarious liability
with respect to a partnership. Vicarious liability means that
liabilities are created by other members of the partnership. The
Uniform Act is a full shield liability statute that provides
every partner with insulation from liability with respect to his
personal assets for any obligation of the partnership, except
those in which the partner has personally engaged liability.
Once a partnership is established, it has to use the term
"limited liability partnership," the initials "LLP," or signify
that it is a limited liability partnership. In this way, third
parties will know about the limitation of liability and the full
shield limitation of liability will go forward. This remains as
long as the partnership is a functioning partnership.
Partnerships are more easily terminated and are not perpetual
like corporations are. Until a termination of the LLP status is
achieved administratively, perhaps because the partnership did
not file its appropriate reports to sustain itself as an LLP, it
maintains its limited liability. The LLP provisions are there for
partnerships that exist: an existing partnership must establish
itself as having the quality of limitation of liability.
The LLP provisions in partnership law are there to serve the
stability of the partnership in order to give the partners
limited liability stature. In order to obtain limitation of
liability, without a limited liability partnership provision,
the partnership will have to be dissolved and recreated in the
form of another entity. This can be eliminated with a limited
liability provision in the statute.
Number 248
CHAIRMAN TAYLOR asked if a limited partnership creates a more
efficient shield from liability than a small wholly-owned
corporation.
MR. MCCABE said that under the Uniform Act there is full shield
liability for a partnership so that the shield of a small
corporation is mimicked more closely. Personal liability
remains; it is vicarious liability that is a product of the
shield. Every partner is liable for his own acts. This differs
from corporations in which most shareholders have full liability
but they do not participate in the business and, therefore, they
are not able to establish personal liability. Partnerships are
designed to be ongoing businesses in which every partner is a
participant in the business.
Number 291
CHAIRMAN TAYLOR said that Section 32.06.305 through Section
32.06.308 provides that a person who is a limited partner and not
actively participating will not lose any more assets than those
who invested in the partnership.
MR. MCCABE agreed, but said HB 296 deals with an entity called a
limited liability partnership which is the old general
partnership in which the partners have full joint liability,
except HB 296 adds limitation liability. That will absolve a
partner from vicarious liability. He noted that passive
investors are limited partners with full liability for
everything.
CHAIRMAN TAYLOR asked if an LLP will be liable up to a certain
amount, after which the partners with provable liability will be
responsible.
MR. MCCABE answered yes.
CHAIRMAN TAYLOR said when Alaska passed the tort reform
legislation the distinction was removed from joint and several
liability. Throughout HB 296, joint and several liability is
found among partners. He asked how this differs from the tort
reform legislation.
Number 367
MR. MCCABE said tort law refers to a group of people who have
contributed to the harm. Partnership law is a business entity
composed of individuals who join together as partners to do
business.
Number 430
HB 369-PROPERTY EXEMPTIONS
MR. JOHN MANLY, legislative aide to Representative John Harris,
explained that HB 369 makes changes to the exemption statute. It
increases the dollar amount of specified asset and adds certain
assets that are not exempt at this time.
Number 440
MR. STEVE GREER, Anchorage attorney, said he was the prime
drafter of HB 369. HB 369 is intended to provide Alaskans with
the security of knowing they will not lose their homes and other
important assets in the event of a financial disaster arising
from an unsecured creditor claim. Financial disasters can arise
from any number of circumstances, such as a medical disaster over
which an individual had no control. In addition, this bill will
promote the growth of small businesses in Alaska and is also
meant to protect Alaskans who participate in risky ventures. By
raising the exemption level of a few assets, people will be
assured they can continue to operate their businesses and keep
some of their assets.
MR. GREER noted that HB 369 does not do the following. It does
not protect a debtor against claims for child support. It does
not protect a debtor against state or local taxes, bills owed for
labor and materials for the repair and improvement of property,
or claims that a victim may have against a criminal offender. It
does not allow a person to put non-exempt property into a
revocable trust expecting it to be protected.
MR. GREER said that HB 369 provides a safety net from unsecured
debt with respect to a few important assets. A common
misconception is that raising exemption levels will promote
bankruptcy filings because once a debtor is assured exempt assets
are safe they can file with impunity. Bankruptcy is usually a
last resort and this is especially true in Alaska which has the
lowest bankruptcy rate in the U.S. In addition, the number of
bankruptcy filings is falling, with the forecasted number of
bankruptcy filings decreasing by 8.4 percent from 1999 levels.
Mr. Greer presented statistics showing that the states with more
liberal bankruptcy laws do not have a higher number of filings.
MR. GREER said another misconception is that raising the
exemption level will hurt the bottom line of financial
institutions. Financial institutions are the least likely to be
harmed because they can secure their debt and exempt their
assets.
MR. GREER noted a provision in Section 7 which could affect
unsecured provisions. A creditor will not be able to seize the
PFD if it can be protected under the cash exemption, but the
definition of a liquid asset can be amended to exclude PFDs. On
the other hand, anyone with less than $8,075.00 in liquid assets
should be able to protect this amount and receive a PFD for the
protection of their family. Without this cash exemption, honest
people will be forced to be dishonest. Lenders can continue to
take a security interest in exempt assets. Alaska financial
institutions are not predatory institutions that allow debtors to
run up tens of thousands of dollars of credit card debt. Alaska
financial institutions are usually perceived as being prudent,
perhaps because of lessons learned in the late 1980's.
MR. GREER stated the point of HB 369 is to let small business
owners know they can continue to operate without fear of having
their assets taken from them. It is not meant to create a
situation for people to get out of paying debts. It is meant to
protect senior citizens in Alaska so they have the security of
knowing that their homes will be protected in light of a
financial disaster, whether it be medical or otherwise.
MR. GREER said the first provision of HB 369 deals with the
homestead exemption. To arrive at the $250,000 exemption,
indexing was eliminated. It was also felt that the marriage
penalty should not be imposed; each person should be entitled to
the $250,000 exemption. This exemption was tied to the Internal
Revenue Code where a person can exempt $250,000 worth of capital
gain. Congress determined that this amount should not be
confiscated in the form of taxes from an individual when a home
is sold.
Number 526
SENATOR DONLEY asked what the index is now.
MR. GREER answered $62,100.
SENATOR DONLEY noted that the number will increase from $62,100
to $250,000.
MR. GREER said that HR 833, before Congress, allows states to
exempt households or homesteads up to $250,000. The U.S. Senate
caps the limit at $100,000 per person.
MR. GREER said Section 3 contains a glitch. A homestead
exemption, even under current law, can be impaired because a
creditor can acquire the homestead at 40 percent of the market
price and, unless the debtor can repurchase at the amount the
creditor bid, the entire homestead can be taken away. The amount
set out under statute will not be exempt because of this glitch.
HB 369 otherwise protects this from happening by stating that
there cannot be a bid for less than the exemption.
MR. GREER indicated that Section 4 is not meant to protect
individual condominium association owners. It is meant to
protect the condominium association itself and, specifically, to
protect condominium reserves. He lives in a condominium
association in Anchorage. About four years ago, the association
hired a painter to paint the building. The painter covered a
lighting fixture which caught on fire and the building went up in
flames. One of the unit owners filed an action in court against
the painters and the condominium association. The reserves that
were meant to provide for repair of the structure over time of
the association were at risk. Fortunately the jury awarded less
than the insurance coverage but had it not, hundreds of families
would have been dispossessed. This situation brought him to
draft HB 369 because he believes it is good public policy to
protect these reserves.
Number 562
SENATOR DONLEY asked if condominium owners have their own
homeowners insurance, so that the aggregate will be available in
case of lawsuits.
MR. GREER said the association has its own insurance. The
lawsuit was not aimed at the individual condominium owners but
the association. HB 369 will protect the reserves of the
association. Owners pay into the condominium reserves for years
but there is no way to prepare adequately for the unforseen. To
the extent that insurance is inadequate, the reserves are up for
grabs.
SENATOR DONLEY asked if a better solution would be to require
individual condominium owners to have a certain amount of
insurance coverage.
MR. GREER said there is no way to know how much is adequate. He
noted if a person had been injured in the fire, no figure can be
put on that damage.
SENATOR DONLEY asked Mr. Greer if he is saying that if a person
is injured, there is no compensation.
MR. GREER responded there is a public policy reason to preserve
the reserves of the condominium association for the purposes
intended. He pointed out that condominium associations are not
for-profit entities; they are just people sharing common
expenses.
SENATOR DONLEY asked if it makes better sense to have a caveat
that requires condominium owners to have a certain level of
insurance. He wondered if this is already required by statute
for protection if someone is injured and entitled to
compensation.
MR. GREER said he cannot speak to whether or not state law
requires a certain amount of insurance for condominium
associations. He thought the amounts are often set by the
insurance companies.
SENATOR DONLEY said, "Why would they bother if they have a total
exemption? Why would they need insurance if you're going to
exempt their liability or their assets from any action?"
MR. GREER said he would hope that most condominium associations
purchase insurance for protection against claims.
Tape 00-23, Side B
Number 2400
SENATOR DONLEY said he agrees and also hopes so, but that did not
work with auto insurance. That is why auto insurance is now
mandatory and, even with mandatory insurance, people drive
without insurance.
MR. GREER said that perhaps the solution is to require a minimum
amount of insurance for protection.
MR. GREER added that retirement plans are currently protected
under the law but, unfortunately, state employees' deferred
compensation plans are not.
MR. GREER gave a synopsis of the following sections.
In Section 6, existing law was not changed. Indexing was removed
and the amounts were brought up to the present indexed amount.
This bill does not add anything with respect to exemptions of
personal property.
Section 7 allows an individual to keep a certain amount of cash
assets. It is meant to track what was set out in the federal
bankruptcy code.
Section 8 raises the limit of the cash value of insurance
policies and annuity contracts. A number of states have better
insurance protection than Alaska allows. If a person becomes
uninsured and wants to continue an insurance policy, payments on
the policy will have to continue. If the cash value is stripped,
there will be no insurance protection for the benefit of the
family. The Internal Revenue Code treats insurance policies and
annuity contracts equally; a life insurance policy can be rolled
into an annuity contract in a tax free exchange. Section 8 also
increases the amount a person can use for retirement purposes
with respect to annuities. $250,000 is the cap for all policies
that an individual may own.
Section 9 deals with the proceeds of a life insurance policy.
This section clarifies that life insurance proceeds will in fact
go to the beneficiaries.
Nothing was added to Sections 10, 11, and 12; they just increase
the present indexed amount and make it law with respect to the
amount that can be garnished.
Section 13 indicates what is exempt under the law.
Section 14 changes the tracing period to 24 months, aligning it
with the Internal Revenue Service Code.
MR. GREER said the last section of importance allows a person the
same type of exemption protection for any asset that is held in
the name of a person or in the name of one's revocable trust.
Most estate planners use revocable trusts as a means of avoiding
probate; this section does nothing to shield a person from
creditor claims. This section puts statutory clarification to
whether or not a person owns an asset in the individual's name or
in the revocable trust. It will still be entitled to the same
exemption that it would otherwise be entitled to.
Number 522
MR. WILLIAM WOOD, representing himself and the Tongass Federal
Credit Union, said he thinks HB 369 is faulty legislation. This
legislation far exceeds the original intent of bankruptcy law
which is to provide a person with a new start but not a wealthy
new start.
This bill is a way for the wealthy to protect their assets on the
backs of the average citizen. This type of legislation will
increase the cost of overall borrowing. A bankruptcy does not
just direct itself to an out-of-state entity, it also affects all
the financial institutions in Alaska. At best it will reduce
some types of financing by financial institutions and raise
rates. It will be more difficult to finance small business
entities and it will increase costs for the average citizen. He
urged the committee to study this legislation to see if the
issues can be effectively addressed.
Number 500
MS. ANNIE HEFFELE, Mat Valley Credit Union, said she agrees with
Mr. Woods' testimony. HB 369 will affect less than 8/10 of one
percent of the Mat Valley Credit Union membership of 23,000.
Only 172 of the 21,000 single family homes in the Mat Valley
exceed a value of $250,000.
Number 489
MR. GARY STERTON, Alps Credit Union, noted that the bankruptcy
code was put in place to give individuals a fresh start - not to
be a financial planning tool. Mr. Sterton said the Internal
Revenue Service tax code was not meant for the bankruptcy arena.
Guidance should come from the public policy arena and not the
Internal Revenue Code.
MR. STERTON expressed concern that there has not been much public
input on HB 369. The way this bill is drafted, a couple with a
revocable trust could shield $1 million equity in a home and $1
million in annuities and walk out of a bankruptcy with more
assets than any of his 2300 members. He said it looks like HB
369 is for a special few.
Number 463
MS. SHARON KELLY, President of the Alaska State Employees Federal
Credit Union (ASEFCU), explained that the intent of bankruptcy
was to keep consumers out of prison and allow them a fresh start.
HB 369 now provides those who file bankruptcy with a safety net.
Ms. Kelly said the stigma of bankruptcy has diminished over the
last few years. People feel more free to go bankrupt and they
structure bankruptcies. The ASEFCU takes an aggressive stand
against bankruptcies because they affect the other members.
Losses sustained in bankruptcies increase the cost of credit.
HB 369 could allow a couple to walk away with $1 million in
assets. Bankruptcies are not decreasing in Alaska, contrary to
earlier testimony, they have increased slightly and ASEFCU feels
they will skyrocket if HB 369 is passed. ASEFCU currently has
$10 million in unsecured credit that would have to be re-priced
for the losses that ASEFCU may sustain. Another area of concern
is accessibility to the Internet and the ability of outside
institutions to offer lower rates to Alaskans. Deferred
compensation is another concern. Public employee retirement
programs are exempted: PERS, TRS and SBS. Deferred compensation
is not. ASEFCU has seen two separate cases where members defer
all of their income into a shelter and then, unable to pay their
bills, they have gone bankrupt. The bankruptcy court threw both
cases out.
MS. KELLY said ASEFCU is opposed to HB 369. She asked committee
members to take a careful look at this legislation.
Number 436
MR. WIN GRUENING, Senior Vice President with Key Bank and
representing the Alaska Bankers Association, noted it would be
possible under public policy to consider changes in current
exemptions, such as the addition of medical savings accounts and
condominium association reserves, but the scope and magnitude of
HB 369 go far beyond that. For instance, Sections 1 and 2 allow
property owners to exempt up to $250,000 each in their personal
residence. For a husband and wife this amounts to $500,000 for
their home. It is not based on a value of $500,000 but their
amount of equity interest. People will also be able to exempt
another $250,000 in the cash value of life insurance or
annuities, thereby shielding assets that might not otherwise be
exempted. There is no current federal exemption in this category
and HB 369 proposes to increase the existing Alaska exemption by
over 20 times. Since this exemption is for each individual, a
husband and wife can use cash, liquidate property, or purchase an
annuity or life insurance policy, thereby making it exempt from
creditors.
HB 369 is not aimed to help the average person. $1 million
dollars in assets could be shielded very easily from creditors.
This legislation is clearly aimed at higher wealth individuals
who will be able to make themselves judgment proof. These are
not people who need this type of protection.
MR. GRUENING said, in response to the sponsor's contention that
there will be no effect on financial institutions, often small
business owners personally guarantee their obligations in order
to financially qualify for a loan. HB 369 will make that
practice more difficult. MR. GRUENING urged committee members to
not pass this legislation out of committee.
Number 383
MR. ROBERT CROWTHER, bankruptcy practitioner in Anchorage, stated
support for HB 369. Home equity is one aspect of a retirement
plan and a substantial homestead exemption protects that
retirement savings and other tax advantaged investments. The
typical person who will benefit has been in a home many years
creating equity for their retirement. Also, auction sales
frequently produce a disappointing price and the damage to
someone's finances are greater than the benefits that ultimately
come to creditors. The deferred compensation provision puts the
retirement savings of state employees on a par with retirement
vehicles used by the private sector, and Mr. Crowther feels the
new liquid asset exemption is a good idea.
Number 331
MR. BOB MCFARLAND said he has done debtor market and collection
work for credit unions, banks and other entities. There are two
types of collections; those with a judgment and those with no
judgment. A collection with a judgment usually means there is a
consensual lien. These are the offsets, non-judicial
foreclosures and UCC sales. In each of those events, there is no
attempt whatsoever on the ability of the credit unions or banks
or other secured creditors to collect. HB 369 will not affect
the ability of the credit union, bank, or other secured creditors
to collect.
MR. MCFARLAND explained there are three types of collections for
a law suit: garnishment, collection on the PFD, and executions on
real or personal property. HB 369 will not affect the ability to
collect by garnishing wages.
MR. MCFARLAND said the only effect HB 369 will have is on the
homestead exemptions. He also feels the situation is a non-issue
because it clarifies that a property exemption will not be lost
because it is in a living trust.
Number 296
MS. DEE ENNIS, an Anchorage attorney, said she files one in five
bankruptcies in Alaska and she supports HB 369. She assured the
committee that she does not deal with higher income individuals.
Clients come to her office in desperation and one of their first
questions is, "Can I save my house?" In the vast majority of her
cases, people file bankruptcy for one of the following reasons:
uninsured medical expenses; unemployment or under-employment;
seasonal employment; small business failure; divorce; military;
or because they are elderly or displaced older workers. She
estimates that less than 20 to 30 percent of her clients file
bankruptcy because of excess consumer spending. The average
person who files bankruptcy in Alaska is the average person with
substantial upset in employment, business, or health.
MS. ENNIS said she is in favor of an increased homestead
exemption. She said concern has been expressed that HB 369 will
be abused by people who will take $100,000 of one asset and put
it in another form that is protected but there is extensive
judicial oversight for this type of activity called exemption
planning or fraudulent conveyance.
Number 266
MR. THOMAS YERBICH, an Anchorage attorney, made the following
comments. Citizens are encouraged to make adequate provisions
during their employment years for retirement so that they do not
become public charges. HB 369 furthers that goal. For Alaskans,
a home not only provides physical family shelter but it is also
the most significant and valuable financial asset they will own.
A substantial proportion of their net worth involves their homes.
For many, home equity is a form of long-term savings and an
informal retirement plan. Homeowners represent almost one-half
of bankruptcy filers. The majority of homes owned by debtors in
bankruptcy are encumbered by at least one mortgage and often two
or three mortgages or liens are attached to the property. Few
have an equity in their residences that exceeds the current
limit. On the other hand, the current exemption limit tends to
discriminate against elderly homeowners and frustrates their
savings efforts because they are more likely to have built up a
greater portion of equity than their younger counterparts who
have greater earning potential ahead. The amount of the
exemption must reflect the fact that the homestead is both a
physical shelter and a long-term savings device.
Medical savings accounts and deferred compensation are not an
issue because they provide parity for employees of non-tax paying
employers. There is no reason to treat employees of governmental
units or non-profits differently from employees of profit making
businesses.
Regarding annuities and liquid assets, most people in Alaska are
employed by small businesses, not the "oil patch." Small
businesses do not provide company-funded pension plans or even
employee 401(k) plans. These individuals can purchase IRAs but
IRAs provide little supplement to social security benefits. Many
turn to other forms: annuities, savings accounts, mutual funds or
small stock brokerage accounts to fund retirement.
Unfortunately, experience has shown that these very same people
are the most vulnerable to experiencing severe financial
distress. They are more likely to suffer job loss and incur
unexpected expenses.
MR. YERBICH noted that concern has been raised that increasing
the exemptions will increase the number of bankruptcy filings.
According to the 1997 National Bankruptcy Review Commission
report, economists and legal scholars repeatedly have found that
larger property exemptions or debtor-favoring bankruptcy laws
have not caused increases in bankruptcy filings. A 1994
Administrative Office of the U.S. Courts Working Paper indicated
that states with generous exemptions often have higher
proportions of Chapter 13 filings than states with more meager
exemptions. In this vein, one must keep in mind that chapter 13
generally results in a higher recovery for unsecured creditors
than does a Chapter 7. It is more likely that the impact of HB
369 will be to increase the number of Chapter 13 filings,
increasing recovery by unsecured creditors. People over 55 are
the most vulnerable to serious financial difficulties, due to
medical expenses, and they are the most likely to be protected by
HB 369. He urged the committee to pass the bill.
Number 180
MS. NANCY USERA, Alaska USA Federal Credit Union, said she has
sent the committee a letter stating her position on HB 369. She
asked committee members to consider who HB 369 protects. She
noted Alaska USA Federal Credit Union has taken over $10 million
in losses over the past six years directly associated to
bankruptcies. She said HB 369 goes beyond the average Alaskan's
assets and earnings. She volunteered to work with the committee
and the sponsor of the bill during the interim to bring the state
bankruptcy code up to date.
SENATOR DONLEY moved HB 296 from committee with individual
recommendations. With no objection, the motion carried.
CHAIRMAN TAYLOR announced that the committee will be holding SB
199 and working on it during the interim.
With no further business to come before the committee, CHAIRMAN
TAYLOR adjourned the meeting at 4:01 p.m.
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