BOSTON–Just how “horse and buggy” are the laws in some places when it comes to the property exempt from seizure by debt collectors?
In Pennsylvania, state law protects almost none of a debtor’s property, with the exception of just clothing, a Bible, schoolbooks, sewing machines not held for resale, military uniforms and $300 of other property—in total.
That’s according to the National Consumer Law Center’s 50-State Review: ‘Horse and Buggy’ Laws Need Major Reform, which surveyed the exemption laws of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands that protect wages, assets in a bank account, and property from seizure by creditors.
“No Fresh Start in 2019: How States Still Let Debt Collectors Push Families into Poverty” finds that not one jurisdiction’s laws meet basic standards so that debtors can continue to work productively to support themselves and their families,” according to the NCLC.
Pennsylvania isn’t alone with its horse-and-buggy laws. The NCLC said it found Michigan protects five swine, two cows, and five roosters, but provides only $3,500 in protection for the family home—just 2% of the median value of a home in the state. Delaware protects a seamstress’s sewing machine, $75 of work tools, and an additional $500 of property unless the debtor files bankruptcy.
A ‘Travesty’
“It’s a travesty when outdated state laws protect sewing machines and roosters but not a living wage, a working car, and a bare bones checking account,” said Carolyn Carter, National Consumer Law Center deputy director and author of the report. “This report serves as a wake-up call for states to update their exempt property laws and stop putting millions of families at risk. Doing so will allow local courts to redirect their focus from the insatiable appetite of a debt machine that churns out millions of undocumented debt collection lawsuits each year.”
According to the National Consumer Law Center report, not one state meets its five basic standards:
* Preventing debt collectors 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 at least $3,000 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses
* Preventing seizure and sale of the debtor’s necessary household goods
States are Graded
According to the NCLC:
- High B grade states include Massachusetts and Nevada
- B grade jurisdictions include Texas, Puerto Rico, and the District of Columbia
- Low B ratings go to New York, Oklahoma, and South Carolina
- High C grades were given to Kansas, North Dakota, and Wisconsin
According to the NCLC, the worst states allow debt collectors to seize nearly everything a debtor owns, even the minimal items necessary for the debtor to continue working and providing for a family. Earning an F grade are: Delaware, Georgia, Kentucky, Michigan, New Jersey, and Utah. Close on the failing heels with a low D grade are Alabama, Arkansas, Indiana, Maryland, Missouri, Pennsylvania, and Wyoming, the NCLC said.
Key Recommendations
The NCLC report recommends that state exemption laws should be reformed to:
* Preserve the debtor’s ability to work, by protecting a working car, work tools and equipment, and money for commuting and other daily work expenses
* Protect the family’s housing, necessary household goods, and means of transportation
* Protect a living wage for working debtors that will meet basic needs and maintain a safe, decent standard of living within the community.
* Protect a reasonable amount of money in a bank account so that debtors can pay commuting costs as well as upcoming rent and utility bills
* Protect retirees from destitution by restricting creditors’ ability to seize retirement funds
* Be automatically updated for inflation
* Close loopholes that enable some lenders to evade exemption laws. For example, states that allow payday lending enable these lenders to evade state laws that protect wages and exempt benefits from creditors. States that allow lenders to take household goods as collateral enable these lenders to avoid state household good exemptions
* Be self-enforcing to the extent possible, so that the debtor does not have to file complicated papers or attend court hearings