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.