A bill in the California Assembly could help Golden State disability insurance beneficiaries who run into financial problems protect more home equity.
The bill also could help residents who run into financial problems keep matured life insurance policies and annuity contracts.
State Assembly Member Bob Wieckowski, D-Modesto, Calif., introduced the bill — Assembly Bill 198 – on behalf of the National Association of Consumer Bankruptcy Attorneys (NACBA).
The bill would increase the dollar amounts in some of the California debtor exemption rules that let residents going through bankruptcy court proceedings and other legal proceedings protect some of their assets.
One provision, the homestead exemption, would increase the amount of home equity that debtors with financial problems could protect.
For homeowners who live in a home and could not work because of a physical or mental disability, the home equity protection exemption would increase to $400,000, from $175,000.
The same limit increase would apply to a homeowner ages 55 years or older who actually lived in the home in question.
Another provision would let any debtor keep up to $500,000 in benefits from a matured life insurance policy, along with “any amount reasonably necessary for the support of the judgment debtor and his or her spouse and dependents,” according to Chuck Nicol, a legislative analyst for the Assembly Appropriations Committee.
Today, a debtor can keep only the benefits from a matured life insurance policy, endowment or annuity contract that are reasonably necessary to support the debtor and the spouse and dependents of the debtor, according to a bill digest.
The Assembly Judiciary Committee approved the bill by a 7-2 vote. The bill is now in the Assembly Appropriations Committee.
NACBA says bill would provide “protections desperately needed by the victims of our struggling economy,” Nicol said.
California banking and bill collector groups say the bill could help “a special class of higher income individuals” protect hundred of thousands of dollars of asset from recovery by creditors, Nicol said.
California lawmakers last increased the debtor exemption amounts in 2010, and the 2010 amounts are supposed to be adjusted every three years to reflect the effects of inflation, Nicol said.
Wieckowski argued that homeowners need more protection, and that protecting more home equity would encourage entrepreneurial activity, by reducing entrepreneurs’ fear that failure could lead to the loss of a home, Nicol said.