Judge Grants TRO Blocking Enactment of New Garnishment Law in Arizona

A state court judge in Arizona has granted a temporary restraining order halting the enactment of a measure approved by voters last month that increases the amount that is shielded from garnishments to pay medical debts while also lowering judgment interest rates that can be charged.

The Arizona Protection from Predatory Debt Collection Act was set to go into effect on December 5, but a legal challenge from the Arizona Creditors Bar Association as well as other companies from the accounts receivable management industry has temporarily kept that from occurring.

An evidentiary hearing in the case has been set for next week. The plaintiffs are seeking to have the regulation nullified because it is too vague under both the Constitution of the United States and the Constitution of Arizona.

The newly enacted law is expected to eliminate up to 70% of garnishments in the state. It raises the homestead exemption to $400,000 from $150,000, bans garnishing the wages of anyone earning less than $50,000 per year — with annual increases, and raises the exemption threshold in bank accounts to $5,000 from $300. Judgment interest rates on unpaid medical debts will be capped at 3%.

In their complaint, the plaintiffs use conflicting interpretations of the regulation’s provisions and the lack of specific guidance as evidence of “mounting uncertainty” about how the law will be implemented, at a time when everyone involved — including companies in the ARM industry — “need definitive guidance.”

“A lack of clarity carries with it not only the possibility that a reputable collector’s reputation and goodwill could be harmed, but because the majority of debt collectors’ revenue usually comes from post-judgment enforcement actions such as garnishments, they could also be forced to cease operating entirely,” the complaint alleges.

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