NCLC Report Calls Out States For Poor Exemption Protections

You have to hand it to consumer advocacy groups. They know how to name a report that will grab everyone’s attention. The National Consumer Law Center yesterday released a report, “No Fresh Start 2020: Will States Let Debt Collectors Push Families Into Poverty In The Wake Of a Pandemic?” which grades each state on their exemption laws preventing income and assets from being seized. Bad news for the states: nobody received an ‘A’, and only nine states received a ‘B’, indicating they had “fairly strong” protections in most categories.

Five states — Georgia, New Jersey, Michigan, Kentucky, and Utah — received failing grades for their exemption protections. Massachusetts and Nevada were recognized as the states with the best protections for consumers, followed by California, the District of Columbia, Puerto Rico, and Texas.

Among the basic standards that the NCLC thinks states should offer consumers are:

  • 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 a reasonable amount in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses for several months
  • Preventing seizure and sale of the debtor’s necessary household goods

Among the recommendations made in the report are:

  • 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—a wage that can meet basic needs and maintain a safe, decent standard of living within the community
  • Protect a reasonable amount of money on deposit so that debtors can pay commuting costs and upcoming bills such as rent, daycare, and utility bills for several months
  • 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 protections of household goods
  • Be self-enforcing to the extent possible, so that the debtor does not have to file complicated papers or attend court hearings

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