BOSTON – Saying millions of families are struggling to recover from the economic fallout of the COVID-19 pandemic and the end of state and federal payment forbearances, eviction bans and utility shut-off moratoriums, a national consumer group is calling on state governments to play a role in “protecting households from seizure of essential wages and property to pay old debts.”
“In states with weak exemption laws, families struggling to get back on their feet after the COVID-19 pandemic will face seizure of wages, bank accounts and essential property due to a wave of debt collector lawsuits,” said Carolyn Carter, associate director at the National Consumer Law Center (NCLC). “Weak protections for the income and assets that families need to survive will impede economic recovery and exacerbate the racial wealth gap.”
The NCLC noted every state has a set of debt collection exemption laws, intended to prevent creditors from pushing families into destitution and to preserve debtors’ ability to be productive members of society and achieve financial rehabilitation.
But the organization said a new survey of the exemption laws of the 50 states, the District of Columbia (D.C.), Puerto Rico, and the Virgin Islands shows that “not one jurisdiction meets five basic standards.”
Those five standards, according to the NCLC, are:
- Preventing creditors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage
- Allowing the debtor to keep a used car of at least average value
- Preserving the family’s home—at least a median-value home
- Preserving a basic amount in a bank account so that the debtor’s funds to pay essential costs such as rent, utilities, and commuting expenses and to weather income and expense shocks are not cleaned out
- Preventing seizure and sale of the debtor’s necessary household goods
The Better States
According to the NCLC, Massachusetts, which modernized its “archaic exemption laws” in 2010, and Nevada, which also recently improved its laws, come closest to meeting these five basic standards, each rating a high B grade. Solid B states include California, Connecticut, the District of Columbia, Maine, Puerto Rico, and Texas, while New York, Oklahoma, and South Carolina rate low B grades.
The Worst States
“At the opposite end of the scale are several states whose exemption laws reflect indifference to struggling debtors,” the NCLC stated. “These states allow creditors and debt buyers—or the debt collectors they hire—to seize nearly everything a debtor owns, even the minimal items necessary for the debtor to continue working and providing for a family.”
States that rate an F, according to the organization, include Georgia, Kentucky, Michigan, New Jersey, and Utah. States the rate a D, the consumer group said, include Arkansas, Indiana, Pennsylvania, and Wyoming.
States Making Improvements
The National Consumer Law Center said some states have made improvements since NCLC’s last report in 2020. Those states include Arizona, Connecticut, Maine, Montana, Virginia, and Washington, which it said made “significant improvements.” Other states that have made “positive improvements” include Georgia, Idaho, New York, Tennessee, and Utah.
“States have good reason to be concerned about protecting their residents from over-aggressive collection of judgments for consumer debts,” the NCLC said. “The growing wealth gap, the high volume of collection lawsuits filed around the country, and the effects of the COVID-19 pandemic strain families to the breaking point and will make them increasingly vulnerable to seizure of essential wages and property. Weak protections against judgments for the wrong amount or wrong person, or without due process, also make aggressive collections problematic.”
According to the NCLC, by updating their exemption laws, states can prevent creditors and debt buyers from reducing families to poverty.
“These protections also benefit society at large, by helping families regain their financial footing and contribute to the economy, keeping workers in the workforce, helping families stay together, reducing the demand on funds for unemployment compensation and social services, and keeping money in local communities where it will aid economic recovery,” the organization said.
The full report can be found here.