Small businesses stand to gain a bit of protection from adverse financial events if the California Assembly passes S.B. 308.
Cash, inventory, or receivables up to $5,000 would be protected under the proposed bill should the entrepreneur get into financial trouble. The amount is modest, but current law has no protection for the basics of running a business.
So even a bit is more than small businesses have now.
However, small business owners will continue to face business-ending legal action unless the Assembly passes S.B. 308 before the end of this session.
The National Federation of Independent Businesses has joined the push for California exemption reform.
NFIB’s announcement of support reminded Assembly members:
If small business owners are going to have a fighting chance to salvage the business they’ve built, they need to be able to hang onto a modest amount of assets to keep the business going – such as pay their employees any wages owed, keep the shelves stocked, and other things necessary to resume business operations.
The new provision would be added to California exemptions that apply in state courts and, if the business owner chooses, in bankruptcy court.
Current exemption law omits small business
While state law has long protected paychecks of wage earners from garnishment, there is currently no like protection for the self employed.
But, work for yourself, and you don’t get a paycheck. Should you suffer a judgment, or have to file bankruptcy, the funds to meet payroll or buy supplies and inventory can be seized.
The results are often fatal to the business.
Being in business for yourself is hard enough. It shouldn’t come without some protection for the means of staying in business.
Home or business
When a small business owner needs bankruptcy protection, he’s faced with an even worse choice between the California exemption systems.
One set of exemptions has a generous homestead exemption to protect the family home, but no protection for receivables, cash or inventory in the business.
The other set of exemptions has a grubstake exemption that could protect the means of staying in business, but that exemption isn’t enough to protect the business and the home.
S.B. 308 would add brand new language to the list of California exemptions.
704.085. The aggregate interest of a debtor who is engaged in a business, not to exceed five thousand dollars ($5,000), in cash or deposit accounts, accounts receivable, and inventory of the business is exempt.
Assembly has an opportunity
The days in which the Assembly can act are dwindling down. S.B. 308 has garnered support from a wide coalition of consumer advocates, elder rights groups, and prominent leaders.
In opposition are banks, wouldn’t you know it, and credit unions, which may be a surprise to you.
Both banks and credit unions want unfettered access to the assets of struggling Californians. They are indifferent to the role of exemptions are a safeguard for individuals who owe money and are struggling.
Find your Assembly representative here.
Or send a quick email adding your voice to those backing S.B. 308.
More on S.B. 308