S.B. 112 Utah Exemptions Act Modifications: transcript

Thank you, Mr. Chair. We'll be, we'll be succinct. Um, so back in 1978, I'm sure you all remember it well, um, as a compromise, um, uh, on some federal bankruptcy litigation, um, they allowed states, if they chose to, to opt out of the federal exemptions and to, and to have their own state exemptions. And most of you have heard the term homestead exemption, which basically means if you file bankruptcy, you can lose almost everything, but you're gonna get to preserve some of your equity. And that number's changed over the years to kind of help you start over. Um, and so, uh, this, uh, and, and by the way, Utah and, uh, I have with me Joel Mark marker. I'll, uh, he's a retired bankruptcy attorney, uh, and judge, but, um, I'll have him elaborate on this. But Utah, for instance, we're fairly unique because we allow an exemption for 12 months storage of food. Does Idaho allow that? Or are we the only one, the only one in the same nation? So some of you will understand why, where that came from, but, you know, so each state can kind of carve out their own exemptions. So, um, with that short introduction, let me introduce Joel Marker. I'm, I'm running the bill, um, at his request. And, um, he is a, uh, 1984 graduate of the University of Utah Law School. And I, I try not to hold that against him, even though I Uintah, uh, the better law school in the state. Um, but he, he turned out as a pretty good attorney. He practiced, um, bankruptcy law for 26 years, and he, he represented both debtors and creditors. And he served as a trustee and, uh, a bankruptcy trustee in over 12,000 cases. And then he was appointed to the bench of the United States, uh, bankruptcy court, part of the District of Utah. So he was a federal judge from 2010 until just last, uh, summer. And, um, and, and having that 15 years of experience, he came to me and said, you know, I think we could make some improvements on Utah's exemptions. And that's the, uh, impetus of this bill. So I'm gonna kick it as part of my, uh, presentation to Joel Marker. And you need to say your name and if you're, uh, representing or the organizations.

Alright. Uh, my name is Joel Lamark. I represent no one other, It's his microphone on. Uh, okay. Uh, don't represent any other association or business. Um, in my 15 years on the bench. Will You pull the microphone closer? Maybe? I think that might help. May help a little bit. Sorry.

Much better, thank you. All right, thank you. Uh, in my 15 years on the bench, I witnessed many, uh, circumstances where a typical case would be, um, uh, a single parent with three children, maybe a certified nurse's assistant who makes $40,000 a year. Uh, that person, when they file their tax returns at the end of the year, gets from the federal government, not from the state, but from the federal government, federal funds in the form of an earned income tax credit, um, of between seven and $8,000. Uh, creditors here in Utah can't garnish those tax federal tax refunds, but when that person files bankruptcy, the chapter seven trustee will put his or her handout and say, thank you very much. Uh, I will take this. I will take my, cut, my commission out of that, and then I'll pay some money, uh, cents on the dollar to your creditors. Uh, that has always to, to me, uh, been, um, uh, a sad state of affairs. Um, and when I retired last summer, I thought I would, uh, do my best to try to change that. So the provisions that are in the substitute bill before you are, um, in, uh, lines one 13 to one 18. Everything Else that you see is technical changes with no policy change. Uh, the first provision beginning in, uh, section, or I'm sorry, line one 13 contains a wild card provision. So, in the, when Utah opted outta the federal exemptions in 1978, it did not include a wild card provision like the federal code does. Uh, and so, uh, anything that a trustee picks up, um, can be used to pay back creditors. Uh, the federal wild card right now is over $15,000. This provision would limit it to $10,000 of any unused homestead exemption that the person would be entitled to. Here in the state of Utah, 30% of all adults don't own a home and can't claim any homestead of anything. Uh, so this would help renters and other people to carry forward into their post-bankruptcy life, at least some small bit of assets that they would be able to use to restart their lives, their, their fresh start. The homestead right now for a couple here in Utah, uh, is $107,500. Um, but if you don't own a home, again, you can't avail yourself of protecting that asset to carry forward, uh, in your post bankruptcy life. So the first provision would provide for a $10,000, uh, exemption for any unused, uh, homestead that the person has. The second part would be to exempt the full amount of any federal earned income tax credit or additional child credit. Again, these are assets that creditors here in Utah cannot garnish in any event, uh, and should be used as Congress intended, as a federal, uh, transfer of funds to those people. And this is the working poor that we're talking about. Uh, and so that's the proposal. And I'm, I'm open to any questions that you might have.

Okay. Well, um, let me just finish that. You should go To Senator Weiler If Yeah, lemme just finish that by saying, um, I know some of our friends in the hall have talked to you about lines one 13 through one 15 of the first sub. That's the wild card. Um, I am not aware of any opposition to lines one 16 through one 18. That's the EITC. Um, so if, um, so I just want to say, um, that there would be a way, if you're convinced that we don't wanna give someone who does, who may be a renter and can't afford a home, if we don't want to give them, uh, at least $10,000 to start out after a bankruptcy. Whereas a homeowner could get up to 107, uh, couple could get up to 107. What is it for an individual? Is it half of that half of that? Yeah. Okay. Um, we, you know, so if, if you're going to vote against the bill because of the wild card, again, the federal government gives a 15,000 wild card, we're only proposing, uh, a 10,000. We could still pass the bill with the EITC provision, which would not affect any collector, anyone trying to collect, uh, a, a loan here in Utah because they can't touch that money anyway. Uh, only a, a trustee in bankruptcy could. So that concludes my presentation, and I wish Lincoln was here for it, so, Okay.

Um, I have a, uh, I have a question. Uh, dis I just don't practice in the bankruptcy area very often, so at all, actually. Uh, so let me just ask, um, does this state exemption get added to the federal exemption? Uh, it's an either or. It's an either or. Okay. That, that was my question.

Well, it's not an either or or No, go ahead. Because he's The expert. He,

Again, your legislature has opted out of the federal scheme. Mm-hmm. So this is the only thing that Utah citizens are allowed to claim when they file bankruptcy here in Utah. Yeah. So it's an, it's only an either or, either your state has done their own or the state, um, defaults to the federal. It's not an either or for Utah filers.

I, I just wasn't sure. Sometimes, uh, and I, 'cause I don't know this, um, if federal law says it is, uh, you know, it enumerates some things, then you have the state program. But if the state is silent on a specific type measure, does it allow then for them to grab that federal principle and apply it to the state?

But it doesn't sound like that's the option. Not at all.

Okay. So the wild card isn't something that the feds

that would change anything here, so, correct.

Okay. That, that helps with my questions. I'm presenting Next door.

Thank you, Mr. Chair. Rusty Cannon with the Utah Credit Union Association. Um, instead of both of us coming up and speaking, um, Howard Headley with the Bankers Association allow me to also kind of speak for both of us here. We, we have had issues with this bill. Um, we have expressed those to committee members and to the, to the good sponsor. Um, we're still working through the first substitute and our understanding of it. I could go into detail, but just to keep the committee time moving along. Um, still uncomfortable, but we've, we feel very confident that the good senator will continue to work with us at this point. Um, but hap I don't know if that makes a whole lot of sense what I was trying to say, but, um, we're comfortably uncomfortable at this point, um, with the first sub. Uh, but just wanted to make that from both of our organizations.

Just for, so the original intent in the, in the Utah constitution, I think it's Section 22, if I remember, establishes the homestead exemption. The design of that is for protecting that, that home, that that place for someone to live. There's a one year period, for example, if someone sells a home in bankruptcy, there's that roughly a hundred thousand in a married couple situation that's protected, uh, as long as it's being re reinvested in a home. That's kind of the original design. Our worry is that this is a bit of a camel's nose under the tent of additional room within there that would maybe shield some debts that were mutually agreed to that weren't really intended to be part of the homestead exemption. However, we understand that can sound a little bit mean-spirited. This is trying to strike a balance between, you know, settling debts, but also being fair. Um, so that, that's sort of the background that, that, that we worry about is that this would maybe forgive additional $10,000 of debt was mutually agreed to. That has nothing to do with the homestead, so to speak. Um, and an expansion that we're uncomfortable with, at least in the, in the case of credit union members lending money, money to each other in that mutual cooperative, they would be taking the, the loss, uh, in this case. And, um, that's, that's something to be reckoned with. So if that answers your question, Richard, share, that's hopefully a little bit of detail.

One point we'd also wanna make is there's an inflation rider in the exemption now. There was legislation passed just I think just a few years ago. Yeah. Um, it used to be 50 for individual, a hundred per couple. It's now, what did you say? 107? There's additional room creeping in regardless because of this inflation rider, which could also make the case that this isn't needed. So, yeah.

Thank you, Mr. Chair. Uh, a motion, I believe to, uh, uh, delete and title embody SB one 12 and replace it with first substitute SB one 12. Okay. That motion's in order. Would you like to speak to that? Uh, no. Thank you. Uh, Senator Weiler, I assume,

Yeah, the only, the only thing that the sub does is it takes out the ability, uh, for state refunds to be, um, affected by this bill. Uh, we did that mostly because the state tax commission was going to put a big fiscal, uh, note to, uh, update their computer system. And I, we just wanted to avoid that, so, so that's the only change.

Thank you, Mr. Chair. Uh, under the, uh, caveat that you'll continue to work with, I will, obviously the credit union, the banks, then, uh, I'll go ahead and, and, and, uh, move that we fatally recommend first substitute Senate Bill one 12 to full body of the Senate. Thank you. Uh, that motion's in order.

Just for Senator Escamilla as benefit, um, Senator Escamilla, this would, um, expand the exemptions allowed to a bankrupt person. So, for instance, if they didn't own a house, or if they owned a house with less as a couple, with less than $107,000 in equity, they could get up to $10,000, um, to, to help them start over. That would be exempt. So the, the bankers and credit unions, uh, have testified against that, but there's a second part that would also, um, take any refund from the earned income tax credit and make that not touchable by a bankruptcy trustee. It's already not touchable by the banks and credit unions because they can't, um, they can't get to a federal tax refund. Those are the two changes the bills makes. But the, the opposition that I've heard has been primarily to the first change. So that's what the bill does. So it, it's really a pro renter, um, uh, bill because it would allow them, uh, $10,000. That's called a wild card to start over if they filed bankruptcy.

No, I'm clear. Thank you so much, Mr.

Um, we have a committee bill. Um, I have two committee bills and two house members sitting here.

Uh, honestly, I, I probably need to go. Okay, Go for it. They said They, they, the bill ahead of mine is up. So Go ahead. Um,

Yeah. Do you want me to go please?

Thank you, Mr. Chair. I have with me Joel Marker. Um, he's a recently retired bankruptcy judge. Um, and, um, and he brought this bill idea to me. He actually worked with the legislature a couple of decades ago. Um, most of you probably know that when you declare bankruptcy, you get to keep some of the items, they, your creditors can't take everything away from you. And in 1978, um, Congress allowed states to opt outta the federal bankruptcy exemptions and create their own standards. Um, and that's what Utah's always done. So, under the Utah Exemptions Act, we, um, we've established our own protections, including a, uh, 12 month storage of food where they, I think maybe Utah and Idaho are the only two states that don't allow creditors to take your 12 month supply of food. I'm sure there's a reason for that. Some of us might, uh, understand that better than others. Um, but, um, Senate Bill 12 makes a very, with a substitute, it makes a very narrow amendment to ensure that earned income, tax credit, refunds, which are not available to local creditors, um, that, that those would be preserved and that the trustee in bankruptcy would not be able to, um, uh, garnish those and that would make that available, um, to, uh, to the family that qualified for them. The EITC is basically, um, a congressional mandate for the working poor. And I wanna be clear, as an attorney, I've tried to collect judgments and I can collect state refunds. I cannot collect federal refunds. Um, and so this would not hurt any local creditor who's trying to collect a judgment. It would just affect the, uh, what the bankruptcy trustee, um, can do. And so, uh, with that, I'm gonna conclude my presentation, and I'll be happy to answer any questions with Mr. Marker. Judge, marker. Uh,

Uh, my name is Joel Marker. I don't represent anyone other than myself. Hold up, microphone a little bit closer, please. Uh, Joel. Marker. Uh, as, uh, Senator Weiler said, I recently re retired after 15 years on the bench here, uh, in the state of Utah as a federal bankruptcy judge. Before that, I had a practice of 26 years with a small firm, uh, representing both debtors and creditors in all aspects of bankruptcy. I also served as a Chapter seven trustee for 12 years and administered 12,000 cases. Uh, so I know the system pretty well. One glaring problem we have with our system is the ability for bankruptcy trustees. When, uh, the working poor filed bankruptcy, uh, the trustee will put his hand out where nobody else can, and say, give me your earned income tax credit, which in some cases can be substantial, uh, depending on the income of the debtor and the number of dependents. So I have thought for many years that this is something that needs to be fixed. Uh, the surrounding states all exempt, the earned income tax credit, Nevada, Arizona, New Mexico, Colorado, Idaho. I'm urging the committee to pass this on to the full house, uh, because I think it's a good sense, fair thing that doesn't cost the State of Utah a dime in order to protect, uh, this benefit to the working poor.

Thank you, Mr. Chair. Has the second sub already been adopted?

Thank you. Okay. I would move that we favorably recommend SB one 12 second substitute Utah Ex Exemptions Act modifications. That's a helpful, Oh, say that three times really fast. Just kidding. Thank you. Kidding. Okay.

Senator Weiler summation, I, I'll waive. Oh, well, I, I'll say this. When I was in college was I, when I was in law school, I was married with a child. Um, I only worked three months in the summer, and I would qualify for the EITC and it, it was, it was a game changer. So, that's all I'll Say. Okay. Alright.

Uh, I'll place the motion to pass out SB one 12 second substitute Utah Exemptions Act modifications with a favorable recommendation.

Senator Weiler. Thank you Mr. President. Um, I'm gonna move a sub, but let me first explain. Um, when someone files for bankruptcy or when a a a creditor sues someone, uh, to collect a judgment, there's certain assets that they cannot attach and we defined those assets in the Homestead Exemptions Act. Um, each state can default to the federal, um, exemptions Act, or they can do their own. Utah's always done their own. For instance. I think we're the only state that allows a creditor protect a 12 month supply of food for some mysterious reason. Um, but, uh, this bill, uh, I've been working with a retired bankruptcy judge, um, uh, to make two changes, uh, to the Exemptions Act. Um, one of them would, uh, affects the tax refund from the earned income tax credit, and the other one would've introduced, um, a wild card, uh, provision for people that don't own homes or have enough equity to exercise the homestead exemption. What I'd like to do after getting some, uh, pushback and committee is I'd like to move the, the sub, and what the sub will do is it'll take out the wild card provision, um, which will only leave the earned income tax credit provision that, uh, so with a sub only, the only change to the existing code would be that a bankruptcy trustee cannot attach the earned income tax refund, uh, which is designed by Congress to kind of help the working poor. So with that, uh, Mr. President, I'd like to move to delete, uh, first substitute Senate bill one 12 entitle and Body, and to replace it with second substitute Senate Bill one 12.

Senator, just wanna check that we're, we are replacing the first substitute with second substitute,

Correct? Correct.

Correct. That answers My question. Okay. Second

All right. So, uh, with the second substitute, this bill would make one change, uh, to the Utah Homestead Exemption Act, and that would make it clear. Clarify that a bankruptcy trustee cannot attach or basically confiscate the earned income tax credit refund, which, uh, local creditors cannot touch. Anyway, without, I'll yield to any questions.

Thank you. I'd move that second substitute Senate bill one 12. Be read for a third time. Thank

Senator Vickers Baldy Lewin Fillmore Grover Harpers Johnson. Juab McKay Mikel Milner Musselman Owens Pitcher Plum Rebe Sandal Stevenson Stratton Bickers Weiler Aye. Wilson Winterton, president Adams Aye. Second substitute Senate Bill one 12.

Uh, thank you Mr. President. I'd like to move to UNC Encircle SCR six.

Correct? Correct.

All right. So, uh, with the second substitute, this bill would make one change, uh, to the Utah Homestead Exemption Act, and that would make it clear. Clarify that a bankruptcy trustee cannot attach or basically confiscate the earned income tax credit refund, which, uh, local creditors cannot touch. Anyway, without, I'll yield to any questions.

Thank you. I'd move that second substitute Senate bill one 12. Be read for a third time. Thank

Uh, thank you Mr. President. I'd like to move to UNC Encircle SCR six. We have a motion, Uncer Senate Concurrent Resolution six.

Thank you Mr. President. This is a bill that would slightly, um, and surgically amend our Homestead Exemption Act. That would take the refund due to an earned income tax credit. EITC, which is not available to local creditors anyway, off the table for a bankruptcy trustee. That's the only change it makes based on the substitute. There's no wild card provision left without, I'll yield to any questions.

Looking for questions? I don't know. Senator Cullimore, are you up?

Yeah. Thank you, president. So the, this exemption would now be applied, would now be, uh, uh, question for the sponsor. Senator Weiler, will you yield? Yes. Go ahead, Senator. This would be a new exemption applicable to anybody with or without real property. Is that correct?

Senator Weiler? Yes. This would only, uh, this would only apply again, the Homestead exemption Wild card is outta the bill. I I stripped that out yesterday. So all that's left is an earned income tax credit refund, which is a refund from Congress for the working poor, which is not attachable by local creditors. Banks, credit unions, uh, debt collecting attorneys in Utah cannot attach this. This would make it untouchable by the bankruptcy trustee. That's the only change this makes. And it wouldn't matter if somebody owns property or not. Senator Cullimore follow up or comment?

No. Thank, thank you, president.

You. I would move that second substitute Senate bill one 12 pass.

Thank you Mr. President. This is, um, the, my Pots Resolution

Thank you you Mr. Speaker. So when somebody has a debt and they don't pay it, um, creditors are allowed to collect against certain assets. But interestingly, and it's interesting to read the bill, we make a list of things that they can't take. And for example, we give a homestead exemption. Uh, we get let them have the use of one vehicle and there's just a list of things that we say creditors can't take. Um, one of the things that we've put on the list is the earned income tax credit. And that's been in our code for a long time. But a bankruptcy judge just remarked that the way the code is written is that only applies in lawsuits filed against the, uh, debtor. It doesn't apply in chapter seven bankruptcy. And so what this does is it doesn't change what's on our list, it just fixes the codes so that bankruptcy matches up with what we're doing. And uh, that concludes my presentation. I'm happy to answer any questions.