Boom turns to bust, and bust turns to boom. It’s been our story in California from the beginning. But in the wake of the Great Recession, our economy has taken on the form of a split personality.
Wherever you look – the tech lands of the Bay Area or the farming orchards of the Central Valley or the vast service economy of Southern California – the recovery is both abundant and missing. The gap between those who soar and those who struggle never has been so stark.
No group sits on the fault line more precariously than the Baby Boom generation, which is fast evolving into the retirement generation. For them, the Great Recession came at the cruelest time. They had reached the top of their earning ladder. Blue collar or white collar, the most experienced workers with the highest salaries often were the first to be laid off. Finding a comparable job hasn’t been easy in a California still affected by the biggest economic downturn since the 1930s.
Sadly, for too many, bankruptcy has become the only option to protect basic household assets and income accumulated over a lifetime. Yet our bankruptcy laws are so antiquated – better suited to a 1970s reality – that families are being forced to not only make good on their debts but hand over their entire nest eggs.
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Many of those hardest hit by the recession and its aftermath, who have lost their car and home and now face rising medical costs, have had to move in with relatives or, worse yet, survive on the streets.
But common-sense reform is at hand. SB 308, authored by state Sen. Bob Wieckowski, D-Fremont, seeks to end two of the more unjust aspects of California bankruptcy law.
Even back in the 1970s, the law recognized the basic fairness of allowing a debtor to preserve a certain portion of his or her home equity. Indeed, it was the foundation of this equity that often gave a family in the grips of bankruptcy a second chance at economic stability.
But this core amount – the so-called homestead exemption – has remained the same for years. If a debtor’s equity stands at $500,000 today, the portion he or she can protect from the bank is still stuck at between $75,000 and $175,000.
To reflect the higher value of houses today and in keeping with the old law’s goal of preventing homelessness, the exemption needs to be modernized. SB 308 does this by modestly increasing the exemption to a range between $100,000 and $300,000, enough to allow thousands of California families – house-rich but cash-poor – to start over.
The bill’s second important reform deals with an obscure 2012 court ruling that gives undue leverage to banks and debt collectors. Families forced by bankruptcy to sell their homes must now reinvest their exempted equity in a second house – within a six-month period.
If they fail to do so, the court trustee seizes all of their exemption. Thus, they are not only rendered bankrupt but dispossessed of their last real asset.
This is not only archaic but perverse. Why should Baby Boomers with no children at home be forced by courts to buy a house rather than rent an apartment? Why should they be compelled to take on a new mortgage during such an insecure time in their lives?
SB 308 gets rid of this onerous requirement and allows a debtor to free up his or her equity exemption for more pressing needs.
Long ago, we stopped putting people in prison for debt. But as the law stands today, the shackles remain. Wieckowski’s reform will put fairness back into bankruptcy laws. For many debtors, it will mean the difference between economic stability and financial havoc, between housing and homelessness.
Blanca E. Castro is a director of advocacy for AARP in California.