06 Feb Sausage, Guns and Cars: Bankruptcy Exemptions and Thoughts on the Legislative Process
Laws, like sausages, cease to inspire respect in proportion as we know how they are made. John Godfrey Saxe, Daily Cleveland Herald (29 March 1869).
Previously, I have outlined the exemptions available to Virginia debtors in bankruptcy – property that a debtor gets to keep from the trustee. They are, to say the least, not very generous. Virginia has no true homestead exemption – there is no protection from creditors for a debtor’s house – and in most cases, it has been over 20 years since the dollar amounts of the exemptions have changed. Over that time, inflation has greatly eroded the value of the exemptions to which a debtor is entitled.
Emboldened by the recent success of a similar effort in New York, a group of Virginia consumers and consumer bankruptcy lawyers launched an effort to update Virginia’s exemptions. We drafted a bill that would create a modest homestead exemption, increase some of the dollar amounts of the other exemptions to keep up with inflation, and protect the Earned Income Tax Credit and Child Tax Credit, “refundable credits” which are really government support for low-income families. It also would eliminate some procedural traps such as the requirement to file a so-called “homestead deed,” even in bankruptcy, to claim the only exemption available to protect cash, tax refunds, and real estate. Our bill was introduced by a bi-partisan group of legislators: Senator Chap Petersen (D), and Delegates Mark Cole (R) and Robin Abbott (D). So far so good…
Then the legislative session started, and our bill was assigned to a subcommittee in each house. And out came the professional lobbyists. Lobbyists for the bankers. Lobbyists for the landlords. Lobbyists for the collection lawyers. Lobbyists who know all of the legislators, contribute to their campaigns, and know how to work the system. By the time we showed up for the hearings on our bill, they had obtained the commitment of powerful legislators to kill the bill, except for two things: guns and cars.
In Virginia, guns are sacrosanct, and it seemed to surprise people that a gun for household use is not among the available exemptions. And the argument that a $2000 car is just not safe or reliable enough to get a person to and from work seemed to be persuasive, even to the banksters (who make car loans, after all). But it did not matter that the 1867 Virginia Constitution established a $2000 homestead exemption — an exemption that “has served one major purpose since its inception, to protect debtors and their families from homelessness and destitution during bankruptcy” – that would be worth $29,000 in today’s dollars. It did not matter that the $5000 wildcard “homestead” exemption has not been increased since 1977 and now has little use in protecting a home. It did not matter that they approved up to $3000 for a gun to defend your home, but nothing for the home itself. The lobbyists and campaign contributors had killed this opportunity to help protect Virginians from losing their homes.
So the bill that has now passed the House of Delegates provides for a $3000 exemption for a gun, and increases from $2000 to $6000 the exemption for a car. We are optimistic that it will pass the Senate and be signed by the Governor. That will be an improvement, and we are glad we could accomplish that.
But in this process, we learned a lot about how the system works — or doesn’t work. The facts don’t really matter. What matters is money – who contributes to campaigns, and who can pay the professional lobbyists. Money that bankrupt Debtors don’t have. What matters is access behind the scenes – not testimony at legislative hearings. What matters is getting our voice, and the voices of those struggling with debt, heard in a way the legislators understand.
There is an election this year. And there is a legislative session next year. We will be back. We have learned. It’s not pretty watching sausage being made. But if you do it right, the results can be worthwhile.
 Often mis-attributed to German Chancellor Otto von Bismarck.
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