October 2013

NCLC®NATIONAL CONSUMER

LAW C E N T E R®

NO FRESH STARTHOW STATES LET DEBT COLLECTORS PUSH FAMILIES INTO POVERTY

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PLEASE SEE UPDATED, 2019 VERSION AT: https://www.nclc.org/issues/report-still-no-fresh-start.html

© Copyright 2013, National Consumer Law Center, Inc. All rights reserved.

ABOUT THE AUTHORSCarolyn Carter is the deputy director for advocacy at the National Consumer Law Center and has specialized in consumer law issues for more than 30 years. From 1974 to 1986 she worked for the Legal Aid Society of Cleveland, first as a staff attorney and later as law reform director. From 1986 to 1999, she was co-director of a legal services program in Pennsylvania. She was the 1992 recipient of NCLC’s Vern Countryman Award. She is admitted to the Pennsylvania bar. From 2005 to 2007 she was a member of the Federal Reserve Board’s Consumer Advisory Council. She is a graduate of Brown University and Yale Law School. Carolyn is co-author of NCLC’s Truth in Lending, Unfair and Deceptive Acts and Practices, Collection Actions and Consumer Warranty Law and is a contributor to a number of other NCLC legal treatises.

Robert J. Hobbs is deputy director of the National Consumer Law Center, having served as a staff attorney from 1972 to 1987. He specializes in fair debt collection law. Bob was on the Board of Directors and the Treasurer of the National Association of Consumer Advocates and is a former member of the Federal Reserve Board’s Consumer Advisory Council. He has participated in FTC rulemaking on creditor practices and the antiholder in due course rule. He testified before Congress on fair debt collection and Truth in Lending legislation and worked with Congressional staff on the development of those laws. He coordinates NCLC’s annual Consumer Rights Litigation Conference and the Fair Debt Collection Practices Training Conference. He is author of NCLC’s Fair Debt Collection and editor of Consumer Law Pleadings.

ACKNOWLEDGMENTSThe views and conclusions presented in this report are those of the authors alone.

The authors thank Massachusetts attorney Mary Kingsley for legal research on this report, NCLC Communications Director Jan Kruse for editorial review and communications support, and NCLC Staff Attorney John Rao for substantive review.

7 WINTHROP SQUARE, BOSTON, MA 02110 617-542-8010 WWW.NCLC.ORG

ABOUT THE NATIONAL CONSUMER LAW CENTER

Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has used its expertise in consumer law and energy policy to work for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the United States. NCLC’s expertise includes policy analysis and advocacy; consumer law and energy publications; litigation; expert witness services, and training and advice for advocates. NCLC works with nonprofit and legal services organizations, private attorneys, policymakers, and federal and state government and courts across the nation to stop exploitive practices, help financially stressed families build and retain wealth, and advance economic fairness.

NCLC®NATIONAL CONSUMER

LAW C E N T E R®

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©2013 National Consumer Law Center www.nclc.org No Fresh Start 1

TABLE OF CONTENTS

Executive Summary 3

Key Recommendations for States 3

Introduction 7

How Exemption Laws Work 8

The Growth of the Debt Buyer Industry 9

How the States Rate 10

Many State Exemption Laws Are Archaic and Outdated 10

Methodology 11

Protection for Wages: Can a Creditor Reduce a Debtor to Below 12 the Poverty Level?

The Family Car: Can A Debtor Continue to Get to Work? 15

Protecting the Family Home from Creditors 17

Stopping Creditors from Threatening Seizure of the Debtor’s 20 Household Goods

Protecting a Basic Amount in a Bank Account 23

The Importance of Self-executing Protections 23

How the States Rate 25

Other Important Exemptions 26

Pensions—Protecting Retirees from Destitution 26

Work Tools 26

Recommendations: What States Can Do to Protect Family Finances 27

Endnotes 29

no fresh startHOW STATES LET DEBT COLLECTORS

PUSH FAMILIES INTO POVERTY

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Appendices

Appendix A: State Protection of Wages 31

Appendix B: Protection of the Family Car 33

Appendix C: Protection for the Family Home 35

Appendix D: Protection of Family Household Goods 37

Appendix E: Protection of Family Bank Accounts 39

Maps

Map 1: Overall Ratings: The Strength of State Protection for Family Finances 4–5

Map 2: State Protection of Wages 13

Map 3: Protection of the Family Car 16

Map 4: Protection for the Family Home 19

Map 5: Protection of Family Household Goods 21

Map 6: Protection of Family Bank Accounts 24

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Every state has a set of exemption laws, intended to prevent creditors from pushing debtors and their families into destitution. Exemption laws preserve basic items of prop-erty from seizure by creditors, so that debtors can to continue to work productively and support themselves and their families. These laws are intended to protect at least subsis-tence wages and essential property from seizure by creditors.

States have good reason to be concerned about protecting their residents from over-aggressive collection of judgments for consumer debts. The economic downturn has strained families to the breaking point and the growth of the debt buyer industry makes them increasingly vulnerable to seizure of essential wages and property.

This report surveys the exemption laws of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. Despite the importance of state exemption laws, this report finds that not one state meets 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;

• Preventing seizure and sale of the debtor’s necessary household goods; and

• Preserving at least $1200 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses.

Best states: Massachusetts, which recently modernized its archaic exemption laws, and Iowa come closest to meeting these five basic standards, each rating a “B+” grade. Solid “B” states include Nevada, New York, North Carolina, Oklahoma, South Carolina, Texas, and Wisconsin. The District of Columbia and New Hampshire each rate “B–” grades.

Worst states: At the opposite end of the scale are several states whose exemption laws reflect indifference to struggling debtors. These 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. Alabama, Delaware, Kentucky, and Michi-gan are the worst and rate an “F.” Meanwhile, Arkansas, Georgia, New Jersey, Pennsyl-vania, Utah, and Wyoming are nearly as bad, rating a “D–.”

Key Recommendations for States

State exemption laws should:

• 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.

EXECUTIVE SUMMARY

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C

D

D

D

D

D

D

D

D

D

C

C

C

C

C

B

B

B

B

C

C

C

C

C

OVERALL RATINGS: THE STRENGTH OF STATE PROTECTIONS FOR FAMILY FINANCES

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©2013 National Consumer Law Center www.nclc.org No Fresh Start 5

D

F

F

F D

D

D

D

D

C

C

C

C

CCC

BB B

B

B

B

C

C

C

D

C

F

C

OVERALL RATINGS: THE STRENGTH OF STATE PROTECTIONS FOR FAMILY FINANCES

A

B

C

DF

Strong protections in all five categories (not one state meets this standard)

Fairly strong protections in most categories

Protections have many gaps and weaknesses

Weak protections

Extremely weak protections

(Washington, D.C.)

(Delaware)

(Rhode Island)

(Puerto Rico)

(Virgin Islands)

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• 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 commut-ing costs and upcoming bills such as 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 pro-tect 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.

Model language for states to achieve these goals is provided in the National Consumer Law Center’s Model Family Financial Protection Act, available at www.nclc.org/mffpa. The model law also includes steps that states can take to reduce the pervasive abuse of the court system by debt buyers. Seizure of debtors’ wages and property would not be such a problem if debt buyers did not churn out such an endless stream of judgments on old, poorly documented debts—many of them not even owed.

By updating their exemption laws, states can prevent debt buyers from reducing fami-lies to poverty. These protections also benefit society at large, by keeping workers in the work force, helping families stay together, and reducing the demand on funds for unem-ployment compensation and social services.

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INTRODUCTION

State exemption laws, which protect income and property from seizure by creditors, are a fundamental safeguard for families. Exemption laws are designed to protect debtors and their families from poverty, and to preserve their ability to be productive members of society and achieve financial rehabilitation.

Exemption laws are particularly important because they protect cars, work tools, and other property that debtors need to stay in the workforce. When debtors lose their jobs, the consequences fall not just on the debtors and their families, but also on landlords, local merchants, and other creditors that the debtor might have paid. By protecting families from impoverishment, exemption laws also save costs that taxpayers would other-wise have to bear for services such as emergency shelter and foster care.

Exemption laws also deter predatory lending. Creditors are less likely to make unaffordable loans if they know they will have to rely on the debtor’s ability to repay the debt, not on seizure of the debtor’s essential property.1

Despite the importance of state exemp-tion laws, states vary widely in the income and property they protect from seizure by creditors. In the majority of states there are enormous gaps in these protections, allowing creditors to push debtors and their families into financial hopelessness. The gaps in exemption laws also give debt collectors enormous leverage. By threatening to take a debt-or’s essential personal property, such as the family car or household goods, a debt collector may persuade a debtor to use the rent money to pay an old credit card bill that ought to be a much lower priority.

Exemption laws are primarily an area of state authority. Federal law requires states to protect at least a certain

How Weak Exemption Laws Endanger Families

John and Mary Doe (names have been changed to protect their privacy) are an Illinois couple. They bought their modest home in 1972 after John returned from serving during the Vietnam War. In the 1980s, John suffered serious health problems that left him disabled. By budgeting carefully and living frugally, the couple managed to stretch their Social Security benefits to stay current on their mortgage.

Several years ago, however, a credit card lender took the Does to court and won a judgment for $1600. It then garnished their bank account, cleaning out the money for their next month’s $500 mortgage payment. With just $955 a month in income, they had no other resources to make that payment. Their mortgage spiraled into default, the mortgage lender started foreclosure, and their home was scheduled for a sheriff’s sale to pay the obligation.

The Does are now in bankruptcy, trying to save their home. Even if they succeed in stopping the foreclosure, they will face a higher monthly mortgage payment because of the foreclosure costs and attorney fees that were added to their mortgage debt.

Tragically, their bank account never should have been garnished, as it consisted entirely of Social Security benefits. The law makes Social Security benefits exempt from garnishment, but at the time neither Illinois law nor any federal regulations required their bank to check whether the funds on deposit were exempt before turning them over to the credit card lender.

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amount of a debtor’s weekly wages from creditors: 75% of wages or 30 times the mini-mum wage. In addition, federal bankruptcy law provides its own set of exemptions for debtors who file bankruptcy. However, states are allowed to opt out and replace the federal exemptions with their own, and many have done so. Only a small percentage of consumers in financial distress file for bankruptcy. Most distressed consumers depend on state exemptions for their protection,2 so this report focuses on the laws that apply to debtors who do not file bankruptcy.

This report surveys the exemption laws of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. It points out exemption laws in particular jurisdictions that cry out for improvement. The National Consumer Law Center’s (NCLC) Model Family Financial Protection Act,3 issued in an updated version along with this report, provides suggested language for states to improve their exemption laws.

How Exemption Laws Work

Exemption laws come into play when a creditor goes to court and wins a judgment against a debtor. A judgment is a decision from the court that the debtor owes a specific sum of money. The creditor can then take steps to seize the debtor’s wages or property

to pay the debt. Typically, the credi-tor asks the court or an official, such as a sheriff, to seize property, order the debtor’s employer to withhold a portion of the debtor’s wages, or order a bank to pay the debtor’s funds to the creditor. The creditor can also place a “judgment lien” on the debtor’s real estate and then foreclose on that lien, forcing sale of the home.

The state’s exemption laws specify how much of the debtor’s wages and property the creditor can seize and how much it cannot seize. In a few states, these exemptions, or some of them, are self-executing: the debtor does not have to act affirmatively to protect the property that is exempt. However, in many states, the exemptions are not self-executing. The property will not be protected unless the debtor takes vari-ous procedural steps—typically, filing

papers in court or attending hearings—to claim the exemptions. These steps are often daunting for debtors, who are typically left to navigate the judicial system on their own without attorneys.

Glossary

As used in this report, these terms have the following meanings:

Exemption law: A law that protects a debtor’s property from seizure to pay a debt owed to a judgment creditor.

Garnishment: An order requiring a party who is holding an asset belonging to a debtor to turn the asset over to a judg-

ment creditor. A wage garnishment orders the debtor’s employer to pay a portion of the debtor’s wages to a judgment creditor. A bank account garnishment orders a bank to turn the money

in the debtor’s bank account over to a judgment creditor.

Judgment or money judgment: A decision from a court in a civil case that a debtor owes a specific sum of money

to a creditor. The debtor is then termed a judgment debtor, and the creditor is a judgment creditor.OUTDATED

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The Growth of the Debt Buyer Industry

The problem of protecting debtors’ essential property from creditors has been exacer-bated in recent years by the growth of the debt buyer industry and its abuses in obtain-ing judgments against consumers. These debt buyers purchase the right to sue on claims, such as old credit card debts, medical bills, and money left owing after a car is repossessed and sold.4 However, there are serious concerns about the legitimacy of the judgments debt buyers obtain when they sue.

One problem is “sewer service”—deep-sixing the papers informing a defendant of a col-lection lawsuit instead of giving them to the defendant. The result is that the defendant has no opportunity to object to the cred-itor’s claim. Sewer service was such a scandal in New York that the attorney general prosecuted a group of process servers that made a practice of falsely certifying that they gave the papers to the debtor and sued the debt collectors that employed them.5

Robo-signed affidavits are another pervasive problem. A New York study showed that in 90% of cases examined, debt buyers submitted robo-signed affidavits—affidavits signed by an employee of the debt buyer, falsely attesting to information that the employee did not and could not know—to the court to establish the debt.6 Indeed, most debt buyers operate without obtaining the key records of the original creditor, but expect to obtain judgments without them.7

Most fundamentally, the sloppy manner in which these debts are bought and sold without documentation means that many are simply not owed. Some are the result of identity theft, some are so old that the creditor is barred from bringing suit, some are the result of fraud by the original seller, and some have already been paid or discharged in bankruptcy.8

Guilty Until Proven Innocent

Ms. G., 59, lives in Brooklyn, New York and works for the public school system. Ms. G. believes she is a victim of identity theft because years ago she was robbed at gunpoint and her wallet was stolen. In March 2011, she discovered that a debt collection law firm had entered a default judgment against her in a lawsuit in 2005, for a debt that she had never heard of with AT&T that had purportedly been purchased by a debt buyer. Ms. G. had never had an AT&T account and had never heard of the debt buyer that sued her. She had never been served with a summons and she learned about the lawsuit only after her paycheck was garnished for the judgment, six years after the lawsuit had been filed. The garnishment caused her significant financial hardship. Only after going to court with the assistance of a legal services program was Ms. G. able to get back the money that had been taken from her paycheck.

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How the States Rate

To achieve the purposes of state exemption laws of preserving the ability of debtors to continue working and being productive members of society and protecting them and their families from destitution, a state exemption law should:

• Prevent debt collectors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage—a wage that can meet basic needs and maintain a safe, decent standard of living within the community;

• Allow the debtor to keep a used car of at least average value;

• Preserve the family’s home—at least a median-value home;

• Prevent seizure and sale of the debtor’s necessary household goods; and

• Preserve at least $1200 in a bank account so that the debtor’s funds to pay such essential costs as upcoming rent, utilities, and commuting expenses are not cleaned out.

Not one state meets all five of these criteria. Massachusetts, which recently modernized its archaic exemption laws, and Iowa come closest, and rate a high “B” grade. Nevada, New York, North Caro-lina, Oklahoma, South Carolina, Texas, and Wisconsin rate solid “B” grades, and the District of Columbia and New Hampshire rate low “B” grades. Texas would rate an “A” grade except for its failure to provide any protection for the debtor’s bank account. In the early days of statehood, Texas was a leader in protecting debtors from oppression,9 and this history continues in its strong protection of debtors’ homes and wages from seizure by creditors.

At the opposite end of the scale are several states whose exemption laws reflect indifference to struggling debtors. These 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. Alabama, Delaware, Kentucky, and Michigan are the worst and rate an “F.” Arkansas, Georgia, New Jersey, Pennsylvania, Utah, and Wyoming are nearly as bad, rating a low “D.”

Many State Exemption Laws Are Archaic and Outdated

In some states, the inadequacy of the state exemption laws simply reflects a failure to update them. Since state exemption laws are so important in protecting debtors from poverty, one would expect that states would key exemption laws to inflation or update them frequently. Some states do, but in a number of states, exemption laws reflect the horse-and-buggy era.

For example, Pennsylvania protects clothing, Bibles, school books, sewing machines that are not held for resale, military uniforms and accoutrements, and a whopping $300 of other property. There is no protection for household goods beyond $300. Creditors can clean out a debtor’s home, taking virtually everything. Nor is there any protection

Not one state exemption law meets all five of the criteria that would keep

a debtor’s family from destitution and allow

the debtor to continue working as a productive

member of society.

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for the debtor’s home, car, or work tools. This indifference to debtors and their fami-lies is balanced out to some extent by Pennsylvania’s refusal to allow creditors to seize any portion of a debtor’s wages, but even that protection has been watered down by exceptions in recent years.

New Jersey provides a total of only $2000 in exemptions for the debt-or’s home, household goods, car, work tools, and all other personal property. Delaware protects a sewing machine owned and used by a seamstress, but only $50 to $75 of tools of the debtor’s trade and $500 in other property unless the debtor files bankruptcy. Vermont pro-tects one cow, two goats, and three swarms of bees, but only a vehicle worth $2500.

Because of inflation and changes in society, exemption laws can become irrelevant simply due to the passage of time. States can reduce the erosion of these critical protections by building in automatic inflation adjust-ments. Alaska is an example: the dollar amounts in its exemption law are adjusted by statute every second year to reflect changes in the Consumer Price Index. Laws in California, Indiana, Minnesota, Ohio, and South Carolina also provide for automatic inflation adjustments. New York adjusts a few of its dollar amounts automatically for inflation. It is surprising that more states have not adopted this simple, yet fair and effec-tive approach.

Methodology

The specific criteria for our ratings of the states are set forth in the sections discuss-ing each category: wages, the family car, a median-priced home, necessary household goods, and a basic amount in a bank account. Each section includes a state-by-state map with state details in the appendices.

Some states allow married debtors to “stack” their exemptions. For example, if a state allowed a $2000 exemption for a car, each spouse might be able to exempt that amount and save a car worth $4000. The figures in this report are based on the individual exemp-tion amounts unless otherwise stated.

Some states provide higher exemption amounts for debtors who are elderly or disabled. In this report we have not used these higher amounts but have used the exemption amounts available to debtors who do not show special circumstances. When states pro-vide a higher exemption amount for a person who is the head of a family, however, we have used that amount in our ratings.

When there are ambiguities in state exemption laws, we have interpreted them in favor of a broader rather than a narrower exemption. This approach is in line with the general principle that state exemption laws are to be interpreted liberally in favor of the debtor. But it also means that, even in states that we rate highly, the exemption law may need improvements to make it clear that the broader reading is correct.

A simple, yet fair and effective approach would be for states to build automatic inflation adjustments into exemption laws.

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PROTECTION FOR WAGES: CAN A CREDITOR REDUCE A DEBTOR TO BELOW THE POVERTY LEVEL?

Protection of wages is one of the most important roles of exemption laws. When credi-tors garnish a debtor’s wages, the employer is required to take the money from the debt-or’s paycheck and send it to the creditor. The debtor never sees that money and cannot

use it to pay higher-priority obligations such as rent, food, and child care. Instead, the money goes to pay old credit card debts, written-off medical bills, or the amount still owed after a car was repossessed and sold.

Wage garnishment can doom a family’s efforts to stay afloat.10 In most states, an employer is even permitted to fire a worker whose wages are garnished for more than one debt.11

Since 1970, federal law has protected 75% of a wage earner’s pay-check or 30 times the federal minimum wage, whichever is greater. This means that wage garnishment will not reduce a debtor’s pay-check below $217.50 (thirty times the current minimum wage of $7.25 an hour). But a weekly paycheck of $217.50 places even a single individual who has no dependents below the federal poverty level.12 For a family of four, $217.50 per week is less than half of the federal poverty guideline ($452.88).13

Federal law gives states the option of protecting a larger portion of a debtor’s paycheck if they choose.14 Yet only 12 jurisdictions protect even a poverty-level wage for a family of four, and 21 jurisdictions do not go beyond the federal mini-mum at all.

Four states ban wage garnishment entirely for typical consumer debts:

• North Carolina (if supporting a family)

• Pennsylvania

• South Carolina

• Texas

A number of other states protect more of a worker’s wages than the minimum required by federal law. In five of these jurisdictions, Iowa, Missouri, New Jersey, New York and the Virgin Islands, the protections are strong enough so that, depending on the exact calculations, a debtor will often be able to retain at least a poverty-level wage. More-over, these states limit wage garnishment to no more than 10% of the debtor’s paycheck. Therefore, a debtor who is already earning more than a poverty-level wage will not face as severe a reduction as the 25% allowed by federal law, and is more likely to retain a living wage.

Federal law protects just $217.50 a week of a

wage earner’s paycheck from garnishment,

placing a single person below the federal

poverty level. For a family of four, $217.50

per week is less than half of the federal poverty guideline.

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STATE PROTECTION OF WAGES

A

A

A

A

B

B

B

B

C

FF

F

FF

F

FF

FF

F

F

F

F

F

F

F

F

FD.C.

FRI

DDE

V.I.P.R.

BF

C

C

D D

D

D

D

D

D

D

D

D

D

DD

DD

D

D

D

D

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Three other states—Alaska, Florida, and Wisconsin—protect enough of a worker’s wages so that wage garnishment will not push a wage earner’s paycheck below the federal poverty level of $452.88 per week for a family of four. While the federal poverty level is a very low benchmark, and should not be the goal for states, these states at least keep families from falling that low.

Twenty other states protect more of a worker’s wages than the minimum required by federal law. These states are shown in the map on page 13. Some of these states exceed the federal minimum by protecting 40 or 50 times the minimum wage, rather than just 30 times the minimum wage. Others do so by using a higher state minimum wage in the calculation,15 by protecting a higher percentage than the federal minimum (75%), or by adding a small additional protected amount for each of the debtor’s dependents. These additional protections are welcome news for struggling debtors. However, these states do not protect a living wage, or even ensure that garnishment will not push a debtor’s wages below the poverty level for a family of four.

Finally, 21 jurisdictions protect no more of a worker’s wages than the federal minimum: $217.50 a week, less than half the poverty level for a family of four:

Alabama

Arizona

Arkansas

District of Columbia

Georgia

Idaho

Indiana

Kansas

Kentucky

Louisiana

Maryland

Michigan

Mississippi

Montana

Ohio

Oklahoma16

Oregon

Puerto Rico

Rhode Island

Utah

Wyoming

NCLC’s Model Family Financial Protection Law protects 80 times the federal or state mini-mum wage. If the debtor nets more than that amount but no more than $1200 a week (the approximate equivalent of $70,000 a year in gross wages), 10% of the excess amount can be garnished, leaving the debtor 90%. If the debtor earns more than that, 15% can be garnished, leaving the debtor 85%. The model law thus allows creditors to make use of wage garnishment, but it protects a debtor from a disastrous reduction in the income necessary to meet daily expenses. The model law would also guarantee that garnishment would never push a debtor’s weekly paycheck below $580 (eighty times the federal mini-mum wage of $7.25 an hour)—hardly a lavish income but at least above the poverty level.

For retirees, some states protect the full amount of certain retirement benefits.17 Such a policy makes sense, since retirement benefits must last the rest of a retiree’s life. But pro-tecting the employment earnings of workers before they retire is equally important. If wage garnishment pushes workers below a living wage, they will not be able to save for retirement so the protection for retirement benefits will not help them.

States should also be alert to ways in which creditors evade protections for debtors’ wages. For example, payday lenders have the borrower write a post-dated check,

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payable on the borrower’s next payday, for the amount due on the loan. This is a back-door method of seizing the borrower’s wages, without a court order and without regard to state and federal limits on wage garnishment.

THE FAMILY CAR: CAN A DEBTOR CONTINUE TO GET TO WORK?

For many workers, a car is essential to employment. Many wage earners have to work substantial distances from their homes or on evenings and weekends when public trans-portation shuts down. Even those whose jobs are near public transportation may be unable to work unless they have a car to take children to and from daycare.

Loss of a car can place a family on a downward trajectory that leads to job loss and a cas-cade of unpaid utility bills, unpaid rent, and deferred medical care. The effect of allow-ing creditors to seize the family car has wide ramifications, hurting not just the debtor and the debtor’s family but also the debtor’s landlord, the local utility provider, and other creditors that the debtor would like to pay.

The average wholesale price for a used car as of May 2013 was $8,946.18 The average price for the lowest-priced category of cars, compact cars, was $7,097.19 Even assum-ing that a state uses the wholesale price rather than the higher retail price to determine whether a car is protected from seizure by creditors, only nine jurisdictions—Idaho, Iowa, Kansas, Louisiana, Massachusetts, Nevada, Oklahoma, Puerto Rico, and Rhode Island—protect even an average used compact car (one worth $7,000 or more) from seizure. (Several states—Arizona, Colorado, Minnesota, New York, and North Dakota—protect a car worth more than $7000, but only if the debtor is elderly or disabled, or if the car is specially adapted for use by a disabled person.)

Some states do not specifically protect a car worth $7000, but give the debtor a “wild card” exemption that the debtor can apply to a car, household goods, or certain other types of property. This approach can enable a debtor to preserve an average used com-pact car, as long as the wild card amount is high enough so that the debtor does not have to choose between preserving the car or preserving the refrigerator and beds. For example, if a state allows a debtor to apply a $9,000 wild card exemption to a car and household goods, the debtor could preserve a $7,000 car and $2,000 in household goods.

As shown in more detail in Appendix B, the District of Columbia, Indiana, Mississippi, New Hampshire, New Mexico, North Carolina, North Dakota, South Carolina, Ten-nessee, Texas, Vermont, and Wisconsin all have wild card exemptions that, either by themselves or combined with other exemptions, total at least $9000. Debtors in these states may be able to preserve at least the most basic household goods and a very low-value used car. Arizona, Colorado, Maine, Virginia, West Virginia and Wyoming allow a debtor to keep a car worth between $5000 and $6999. Maryland and Washington also fall in this category: although they provide exemptions of less than $5000 for a car, they also provide a wild card exemption that might enable a family to keep a low-value used

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PROTECTION OF THE FAMILY CAR

F

B

B

B

A

D

F

D

D

BD

C

AD

C

DB

AD

A

C

F

F

F

D

D

A

V.I.P.R. FA

D

B

D C

A

C

B

B

D

B

D

C

A

BB

CC

D

D

D

D

BD.C.

ARI

FDE

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car. Alaska, California, Connecticut, Florida, Georgia, Hawaii, Illinois Kentucky, Min-nesota, Missouri, Montana, Nebraska, New York, Ohio, Oregon, South Dakota, and Utah provide only enough of an exemption to enable a debtor to keep, at most, a very low-value used car, one worth between $1500 and $4999. Georgia and South Dakota give the debtor a $5000 or $6000 exemption but it must cover household goods as well.

A few states provide so little protection for a debtor’s car that it will almost never be possible for a debtor to protect a working car from seizure. Alabama, Arkansas, Dela-ware, Michigan, New Jersey, Pennsylvania, and the Virgin Islands all either provide less than $1500 protection for a car, or provide a very minimal wild card exemption that cannot protect both a working car and minimal household goods. Delaware protects a car worth up to $15,000, but only if the debtor files bankruptcy.

NCLC’s Model Family Financial Protection Act protects a car worth up to $15,000, and up to $25,000 if the car is specially adapted because of a disability of the debtor or a dependent. It also provides a wild card of $10,000 that the debtor can use, if necessary, to exempt the remaining value of a car (or a low-value second car so that a second family member has transportation for work, school, or child care). By allowing a debtor to retain a moderately-priced car, NCLC’s Model Law enables debtors to remain produc-tive members of society and support their families.

PROTECTING THE FAMILY HOME FROM CREDITORS

Protection of the family home from creditors is one of the fundamental purposes of exemption laws. Loss of a home means loss of support networks. It can also mean loss of a job if the family cannot find replacement housing within commuting distance. For a farm family, loss of the home means loss of their source of support. Loss of the family home is particularly hard on children, as it often means that they must change schools and leave friends and relatives behind.

Some states protect the debtor’s home regardless of its value, usually with a limit on acreage, such as a half-acre in an urban area or 160 acres in a rural area. This approach most clearly recognizes the importance of the home. However, this approach has engen-dered controversy because of occasional attempts by wealthy individuals to shield all their assets from creditors by moving to one of these states and investing all their assets in an exempt home. While these cases are exceedingly rare, they may have made states reluctant to adopt uncapped homestead exemptions, and the Model Family Financial Protection Act provides a homestead exemption tied to the median home price in the area.

Eight jurisdictions protect the family home regardless of value: Arkansas (head of household only), District of Columbia (head of household only), Florida, Iowa, Kansas, Oklahoma, South Dakota, and Texas. All of these jurisdictions, except the District of Columbia, place limits on the number of acres that the exempt homestead can include.

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Five other states—Massachusetts, Minnesota, Montana, Nevada, and Rhode Island—have a dollar cap on the amount of the homestead exemption, but the cap is high enough so that a median-priced home ($211,312 as of 201220) is exempt.

Seven states—Arizona, Idaho, New Hampshire, North Dakota, Ohio, Vermont, and Washington—have homestead exemptions that are sufficient to protect about half the current median value of a home. Since the median value of homes is not uniform nation-wide, these laws may be sufficient to protect a modest home in some states. They may also protect a home that is still encumbered with a substantial mortgage

Some of the remaining states provide lower homestead exemptions, but at least protect about one-quarter of the median price of a home. The states falling into this category are Alaska, California, Colorado, Connecticut, Maine, Mississippi, Nebraska, New Mexico, New York, South Carolina, and Wisconsin. All of these states protect a home between $50,001 and $99,999 in value.

Fourteen jurisdictions, listed in the map on page 19, provide even lower homestead exemptions—as little as $5,001 to $50,000. These exemption amounts are so small that they are likely to save only a heavily mortgaged home.

Eight states—Alabama, Delaware, Kentucky, Michigan, New Jersey, Pennsylvania, Vir-ginia, and West Virginia—provide little or no protection for the family home. Pennsyl-vania, for example, provides a wild card exemption of just $300. The debtor can apply this exemption to a car, household goods, a home, or other property. Delaware is simi-lar: it allows the head of a household to apply a $500 wild card exemption to the family home. Only if the debtor files bankruptcy is a realistic homestead exemption ($125,000) available. New Jersey provides no exemption at all that can be applied to a home. Ala-bama, Kentucky, Virginia, and West Virginia provide $5,000 homestead exemptions, and Michigan’s is just $3,500.

Whether a home is exempt typically depends on whether the debtor’s equity in it is less than the exemption amount. As a result, a home with a large mortgage debt may be exempt even if the home’s market value would exceed the exemption amount. The reason is that, if the creditor forced the sale of a mortgaged home, the proceeds would go first to pay off the mortgage debt and only the amount left after that would go toward the creditor’s debt. As a result, elders who have lived in a home a long time and have paid down their mortgages are particularly likely to face loss of their homes in states that have low homestead exemptions.

Some states allow a married couple to “stack” the exemptions summarized in this sec-tion. For example, Alabama allows each of two spouses to claim the state’s $5000 home-stead exemption. In addition, some states—even some states that provide little or no other protection for the home—recognize a doctrine called “tenancy by the entireties” under which a home owned by a married couple cannot be subjected to a forced sale by a creditor unless both spouses owe the debt. This legal doctrine protects some homes, but it has limited application since often both spouses owe the debt. In addition, it pro-vides no protection at all to widows, widowers, and divorced parents—who may be most in need of protection.

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PROTECTION OF THE FAMILY HOME(See Appendix C on page 35 for specifics on each jurisdiction's rating.)

F

D

C

A

A

D

F

C

A

CD

B

BD

D

DD

AF

D

D

A

F

F

A

B

A

V.I.P.R.

DD

C

C

C C

A

B

C

B

A

D

D

C

A

BB

FF

A

C

D

C

AD.C.

ARI

FDE

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Exempting the family home does not leave the creditor empty-handed. Typically, homestead exemption laws are structured so that a judgment creditor can place a lien on the family home, but they forbid foreclosure on that lien. The creditor is paid when the homeowner(s) die. If the family sells the home, the creditor can take any proceeds that exceed the exempt amount. The creditor can even take the exempt amount if the debtor(s) do not use it to buy a new home.

STOPPING CREDITORS FROM THREATENING SEIZURE OF THE DEBTOR’S HOUSEHOLD GOODS

Household goods usually have little resale value. Seizing them and selling them does little to pay off a debt. The costs of seizure and sale can even exceed the proceeds of the sale.

Yet, while the debtor’s household goods are of little use to the creditor, they are of enormous value to the debtor. Without beds, tables, chairs, a stove, a refrigerator, and other furniture and appliances, debtors cannot maintain a household for themselves and their dependents.

The mere threat to take a debtor’s household goods, even when the creditor rarely or never follows through, places tremendous pressure on families. The threat can induce debtors to pay old written-off credit card and other low-priority debts rather than high-priority obligations, such as rent and utility bills

The strongest approach is to protect all of a debtor’s necessary household goods and appliances. Six states—California, Connecticut, Hawaii, Kansas, Louisiana, and Okla-homa—follow this approach. In addition, Maine achieves a similar result by protecting all household goods and appliances as long as the value of any individual item does not exceed $200. Maine also provides a wild card exemption that ranges, depending on the circumstances, from $400 to $6000 that can be used to protect more expensive items such as appliances. Although New York does not protect all household goods, it protects all household furniture plus a list of other items, including a stove and refrigerator, so mar-ginally qualifies in this category.

A second approach that some states take is to allow the debtor to exempt household goods up to a dollar amount. Some states provide an exemption just for household goods, capping the aggregate dollar amount of household goods exempted and some-times also placing a cap on the value of any individual item. In other states, the debtor must use a single exemption, with its dollar cap, for household goods, the family car, and work tools. As long as the dollar amount is high enough, the debtor can protect the items necessary to keep a family intact. (Some of these states also provide a separate exemption for certain specified household items, such as beds).

Of the jurisdictions that follow this approach, ten—the District of Columbia, Massachu-setts, Minnesota, Nevada, New Hampshire, North Carolina, Ohio, Texas, Washington, and Wisconsin—allow a debtor to keep at least $10,000 of household goods (or provide a combined exemption sufficient to protect $10,000 of household goods plus a $7000 car).

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PROTECTION OF THE FAMILY HOUSEHOLD GOODS

F

B

C

B

C

D

F

A

D

CD

D

CD

D

DC

AD

A

D

F

F

D

D

B

A

V.I.P.R.

DF

D

B

A D

B

B

D

C

D

C

D

A

B

BC

DC

B

F

A

A

BD.C.

CRI

FDE

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Ten states—Idaho, Indiana, Iowa, Mississippi, North Dakota, Rhode Island, South Caro-lina, Tennessee, Vermont, and West Virginia—protect at least $7000 but less than $10,000 of household goods, or provide a wild card exemption that will protect $7000 of house-hold goods and a motor vehicle worth at least $2000. Eighteen jurisdictions—Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Illinois, Kentucky, Maryland, Missouri, Montana, New Mexico, Oregon, South Dakota, Utah, the Virgin Islands, Virginia, and Wyoming—protect only between $2000 and $6999 of household goods.

Seven jurisdictions—Arkansas, Delaware, Michigan, Nebraska, New Jersey, Pennsylvania, and Puerto Rico—protect virtually none of the debtor’s household goods. For example, Arkansas provides a $200 exemption ($500 if the debtor is married or the head of a household), which must cover all personal property. Delaware provides just a $500 exemption for all personal property except work tools, clothing, and bedding. This shocking indifference to debtors and their families means that creditors can clean out a family’s home even though used household goods typically have little or no resale value.

Some states allow a married couple to preserve jointly-owned per-sonal property, such as household goods or a car, from creditors if

only one of the two spouses owes the debt. This rule, called “tenancy by the entireties,” ameliorates the harshness of low household good exemptions in some states, but only in the relatively uncommon case when only one of two spouses owes the debt. It provides no help to widows, widowers, divorced parents, or single individuals.

NCLC’s Model Family Financial Protection Act protects all the debtor’s household goods, but allows the creditor to ask a court to allow sale of any item worth more than $3000. This approach ensures that a family will not be stripped of essential items needed for daily life, yet at the same time does not protect high-cost luxury items.

States should also take care to prevent creditors from evading state restrictions on sei-zure of household goods. The primary way that creditors evade these restrictions is by having the borrower put up household goods as collateral for the loan. Then, if the borrower defaults, the creditor has the right to seize the household goods, even if state exemption law protects them. The FTC Credit Practices Rule21 prohibits lenders from taking certain household goods as collateral (unless the credit is extended to purchase those household goods), but leaves a large number of household goods unprotected.

Arkansas, Delaware, Michigan, Nebraska, New

Jersey, Pennsylvania, and Puerto Rico

protect virtually none of the debtor’s

household goods.

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PROTECTING A BASIC AMOUNT IN A BANK ACCOUNT

Even if a state’s exemption laws protect a debtor’s home and essential personal property, a debtor needs to be able to access some basic amount of cash to commute to work, buy groceries, and pay the upcoming rent or mortgage payment or the next payment on the family car. A debtor who is left without cash may also be unable to pay for bus fare, daycare, utility service, and other necessities, not to mention emergency expenses such as car repairs.

Every state gives a creditor the right to seize funds in a bank account in the debtor’s name once it has obtained a judgment from a court determin-ing that the debtor owes a debt. Many states allow the creditor to clean out the account completely, protecting at most a few special types of accounts such as college savings accounts. Only a few states set a fixed amount that the credi-tor cannot touch.

Protecting bank accounts is particularly important in light of the growing use of direct deposit of wages. If a creditor can clean out the debtor’s bank account, this can amount to seizure of 100% of the debtor’s wages, in essence nullifying the federal and state limits on wage gar-nishment. Some state wage garnishment laws are interpreted to protect wages even after they are deposited in a bank account, but typically these laws are not self-executing: the debtor must go to court and present evidence tracing the funds on deposit to specific wage deposits. This process can take weeks. In the meantime, the account is frozen so the debtor cannot pay the rent, bus fare, car payment, or mortgage payment. Not only is the account frozen but hundreds of dollars of bank fees will be imposed against the next paycheck deposited, undermining the debtor's ability to pay the next month's bills.

The Importance of Self-executing Protections

In 2010, a group of federal agencies led by the U.S. Treasury Department addressed a similar problem with respect to federal benefits, such as Social Security benefits that are direct-deposited into the beneficiary’s bank account. Even though federal law makes Social Security and other similar federal benefits immune from garnishment for all

Improper Bank Account Seizure Puts Family at Risk

Ms. C., 49, from the Bronx in New York, discovered that she had been sued when her bank account, containing her tax return, was restrained without notice. The shock of losing access to her bank account and the stress of finding out she had been sued exacerbated a pre-existing medical condition, which required emergency eye surgery. As a result of the surgery, Ms. C. could not return to work immediately and needed the funds even more desperately to cover her family’s expenses while she recuperated. The underlying case was for an alleged medical debt for her disabled 20-year old son. However, Ms. C. had never previously heard of the plaintiff and had never received any notices or bills from the company. Ms. C. notified the plaintiff that she had never been served with court papers and that she disputed the validity of the debt, but instead of lifting the restraint, the plaintiff levied the restrained funds. Only after going to court with the help of a local legal services program was Ms. C. ultimately able to regain the money.

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PROTECTION OF FAMILY BANK ACCOUNTS(See Appendix E on page 39 for specifics on each jurisdiction's rating.)

A States that protect at least $1200 in bank account

B States that protect at least $700 in bank account, plus car and household goods worth at least $9000, or that explicitly exempt deposited wages

C States that protect at least $700 in bank account, plus car and household goods worth total of $7000

D States that protect car and household goods worth at least $4000 to $6999, plus at least $300 in bank account

F States with no protection, or with protection only for specialized types of accounts, or that provide just a wild card of $3999 or less for bank account, household goods, and car

F

B

B

F

B

D

F

A

B

BD

D

FB

F

FC

FF

F

D

F

F

F

B

D

B

V.I.P.R.

FF

F

A

B F

B

B

C

B

D

B

D

D

A

BB

CB

B

B

B

C

BD.C.

FRI

FDE

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©2013 National Consumer Law Center www.nclc.org No Fresh Start 25

purposes except child support, creditors were seizing those funds once they were depos-ited.22 To reverse the seizure of the benefits, the beneficiary had to navigate the court system and prove the source of the funds, and in the meantime had no access to these essential benefits. In 2010, the Treasury Department adopted a rule that requires a bank that receives a garnishment order to determine whether the bank account contains elec-tronically deposited exempt federal benefits. If it does, the bank must protect the last two months of deposits.23

The beauty of the 2010 Treasury rule is that it is designed to be self-executing. The bank protects the funds. No action on the part of the beneficiary is necessary—the beneficiary does not have to file papers in court, attend court hearings, or present evidence about the source of the funds. And because the protection is self-executing, the account is not frozen while the beneficiary tries to navigate the judicial system. The approach of auto-matically protecting electronically deposited exempt benefits was pioneered by Califor-nia and New York, which adopted similar laws prior to the Treasury Department rule.

The Treasury rule, while a great improvement, still has gaps. It protects only certain federal benefit payments and only two months of those payments. It does not protect state-paid benefits. Most critically, it does not protect wages that are deposited into bank accounts or any portion of a family’s savings. However, it is a demonstration of the prac-ticality and effectiveness of a self-executing protection for bank accounts, and a model for the states.

How the States Rate

The analysis of states’ protection of bank accounts shown in Appendix E is from the point of view of a debtor who is supporting a family and renting a home or apartment. The median amount of rent paid by a family in the U.S. is $717 per month.24 If the state provides a targeted exemption of at least $1200 in a bank account, a family living in rela-tively low-rent housing will be able to pay the rent ($700) and will have $500 for other monthly expenses such as utility service or commuting costs. This is a very low stan-dard, as the median rent in a metropolitan area can greatly exceed $700 per month. Yet only Massachusetts, New York, and Wisconsin fall in this category. The map on page 24 gives these states an “A” rating.

Exemptions like those in Massachusetts and Wisconsin that set a fixed amount that is exempt in a bank account are especially worthy of consideration by the states because they can be structured to be self-executing. The bank holding the account can potentially preserve the exempt amount without the need for action by the debtor, or can at least alert the debtor about the availability of this specific exemption.

Other states do not provide a targeted exemption of $1200 or more for bank accounts, but provide a series of exemptions, usually including a wild card that the debtor can apply to exempt a car, household goods, and a sum of money in a bank account. If the state allows the debtor to exempt household goods and a car worth a total of at least $9000, plus $700 in a bank account, the table gives the state a “B.” With these exemp-tions, a debtor could exempt an average used compact car ($7000), $2000 worth of

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household goods, and enough money to pay a month’s rent in relatively low-rent hous-ing. States whose statutes explicitly provide that wages remain exempt after deposit in a bank account are also rated “B,” as they provide an important, albeit limited, protection for wage earners’ bank accounts.

States whose exemption schemes allow a debtor to exempt a car and household goods worth a total of $7000 plus $700 in a bank account, and that do not explicitly provide that the exemption for wages continues after deposit, rate a “C.” Those that allow exemption of a car and household goods worth a total of $ 4000 to $6999 and at least $350 in a bank account, and do not have an explicit statutory exemption for deposited wages, rate a “D.”

The remaining states rate an “F.” Some of these states provide no means for a debtor to exempt any amount in a bank account, or protect only a few specialized types of accounts such as college tuition accounts. Others in this category provide a wild card that can be applied to a bank account, but it is $3999 or less and must also cover house-hold goods and the family car.

OTHER IMPORTANT EXEMPTIONS

Pensions—Protecting Retirees from Destitution

Just as states must protect wages in order to save working families from destitution, they must also protect retirement income. Retirees typically have fewer options than younger adults. Too old or frail to rejoin the workforce, their retirement funds must cover not just housing costs, food, transportation, and utilities but also growing expenses for home care, medications, and adaptive equipment. The money in a retirement fund may seem like an attractive target for a creditor, but the fund must last the rest of the retiree’s life.

The great majority of jurisdictions protect retirement funds to some extent. However, some states protect just certain pensions or certain types of retirement vehicles. Some place a dollar cap on the amount protected. Others limit the protection to an amount necessary for support, which invites creditors to try to persuade a court to reduce an elderly debtor to penury.

NCLC’s Model Family Financial Protection Act treats all pensions and retirement funds equally. Given current life expectancies and the magnitude of potential medical and home care expenses, the Model Law protects $1,500,000 of retirement funds for the debtor, and $1,500,000 for each of the debtor’s dependents except to the extent they have other means of support.

Work Tools

Many debtors—skilled craftsmen, farmers, or orchard workers—require special-ized tools and equipment in order to maintain productive employment. Other work-ers require computer equipment and programs in order to earn an income. It is

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counterproductive to allow creditors to seize and sell items that enable a debtor to be employed, support a family, and pay debts.

Many states provide a special exemption for tools of the trade, but states vary widely. Some offer no exemption or one as low as $75, while others exempt $10,000 or more in tools of the debtor’s trade.

NCLC’s Model Family Financial Protection Act provides that $30,000 in tools of the trade, or $50,000 in the case of farm tools, are exempt from seizure by creditors. So that unemployed debtors are not shut out of their field of employment, it allows a debtor who is searching for employment to claim the same tools of the trade as exempt.

RECOMMENDATIONS: WHAT STATES CAN DO TO PROTECT FAMILY FINANCES

States have good reason to be concerned about protecting their residents from over-aggressive collection of judgments for consumer debts. The economic downturn has strained families to the breaking point, and the growth of the debt buyer industry makes them increasingly vulnerable to seizure of essential wages and property.

State exemption laws should:

• 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 commut-ing costs and upcoming bills such as 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 pro-tect 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.

Model language for states to achieve these goals is provided in the National Consumer Law Center’s Model Family Financial Protection Act, available at www.nclc.org/mffpa.

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At the same time, policymakers need to address the pervasive abuse of the court system by debt buyers. Debt buyers obtain an endless stream of court judgments against con-sumers without any documentation that the consumer actually owes the debt. These judgments then enable the debt buyer to seize consumers’ wages, cars, household goods, homes, and bank accounts—the harsh collection remedies highlighted in this report. Part I of NCLC’s Model Family Financial Protection Act suggests steps that states can take to tighten up their procedures and reduce these abuses.

By updating their exemption laws, states can prevent debt buyers from reducing fami-lies to poverty. These protections also benefit society at large, by keeping workers in the work force, helping families stay together, and reducing the demand on funds for unem-ployment compensation and social services.

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ENDNOTES

1. As early as 1968, when Congress adopted the wage garnishment limitations of the Consumer Credit Protection Act, it found: "The unrestricted garnishment of compensation due for personal services encourages the making of predatory extensions of credit. Such extensions of credit divert money into excessive credit payments and thereby hinder the production and flow of goods in interstate commerce." 15 U.S.C. § 1671(a)(1).

2. Richard M. Hynes, “Broke But Not Bankrupt: Consumer Debt Collection in State Courts” (60 Fla. L. Rev. 1 (2008).

3. Robert J. Hobbs and Chi Chi Wu, National Consumer Law Center, Model Family Financial Protection Act (June 2012; revised October 2013), available at http://www.nclc.org/mffpa.

4. Rick Jurgens and Robert J. Hobbs, National Consumer Law Center, The Debt Machine: How the Collection Industry Hounds Consumers and Overwhelms Courts (July 2010), available at http://www.nclc.org/issues/debt-collection.html.

5. Press Release, Attorney General Cuomo Sues to Throw Out Over 100,000 Faulty Judgments Entered Against New York Consumers In Next Stage of Debt Collection Investigation (July 22, 2009), available at http://www.ag.ny.gov/press-release/attorney-general-cuomo-sues-throw-out-over-100000-faulty-judgments-entered-against-new. See also “Suit Claims Fraud by Debt Collectors,” New York Times Dec. 30, 2009, available at http://www .nytimes.com/2009/12/31/nyregion/31debt.html?_r=0.

6. Susan Shin and Claudia Wilner, New Economy Project, The Debt Collection Racket in New York at 4 (June 2013).

7. Federal Trade Commission, The Structure and Practices of the Debt Buying Industry (Jan. 2013), available at http://www.ftc.gov/os/2013/01/debtbuyingreport.pdf.

8. Rick Jurgens and Robert J. Hobbs, National Consumer Law Center, The Debt Machine: How the Collection Industry Hounds Consumers and Overwhelms Courts (July 2010), available at http://www.nclc.org/issues/debt-collection.html; Claudia Wilner, New Economy Project (formerly the Neighborhood Economic Development Advocacy Project); Nasoan Sheftel-Gomes, Urban Justice Center; Carolyn Coffey, MFY Legal Services; Tashi Lhewa, The Legal Aid Society; and April Newbauer, Legal Aid Society; Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers (May 2010) available at http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WEB.pdf.

9. Robert A. Caro, The Path to Power: The Years of Lyndon Johnson, Vol. 1 (New York: Alfred A. Knopf 1982).

10. See Sniadach v. Family Fin. Corp., 395 U.S. 337, 341-2 (1969) (prejudgment wage garnishment “may as a practical matter drive a wage-earning family to the wall”).

11. See 15 U.S.C. § 1674(a) (prohibiting an employer from discharging an employee by reason of the fact that "his earnings have been subjected to garnishment for any one indebtedness," but placing no restriction on discharge by reason of garnishment for more than one indebtedness).

12. The 2013 federal poverty level for a one-person household is $11,490 a year or $220.96 per week. See http://aspe.hhs.gov/poverty/13poverty.cfm.

13. The 2013 federal poverty level for a four-person household is $23,550 per year or $452.88 per week. See http://aspe.hhs.gov/poverty/13poverty.cfm.

14. For the sake of simplicity, the maps in this section do not distinguish between gross and net wages. In drafting a wage garnishment limit, these distinctions are important, because the exact calculations can make a significant difference.

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15. See www.dol.gov/whd/minwage/america.htm (listing state minimum wage amounts).16. The judge can protect more in case of hardship.17. See Robert J. Hobbs and Chi Chi Wu, National Consumer Law Center, Model Family

Financial Protection Act, (June 2012, revised October 2013).18. http://www.autoremarketing.com/wholesale/adesa-may%E2%80%99s-year-over-year-wholesale-

price-decline-mirrors-april%E2%80%99s-reading19. Id.20. http://news.theregistrysf.com/u-s-median-home-prices-increase-11-percent-in-2012-says-

ziprealty. See also  http://www.census.gov/construction/nrs/pdf/uspriceann.pdf) (median new home sales price in 2012 was $245,200); http://www.realtor.org/sites/default/files/reports/2013/embargoes/ehs-7-22-kjuh/ehs-06-2013-overview-2013-07-22.pdf) (median sales price of an existing home in 2012 was $176,800)

21. 16 C.F.R. Part 444.22. See, e.g., Mayers v. New York Cmty. Bankcorp, 2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005).23. 31 C.F.R. Part 212.24. http://www.census.gov/housing/hvs/data/histtabs.html (Table 11A/B. Median Asking Rent

and Sales Price of the U.S. and Regions: 1988 to Present) (2012 figure).

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APPENDIX A STATE PROTECTION OF WAGES

NCLC’s Model Family Financial Protection Act Recommendation: 80 times federal or state minimum wage or 10% of disposable income (15% if weekly disposable income exceeds $1200)

STATE AMOUNT PROTECTED

“A” States Ban Wage Garnishment for Most Debts

North Carolina All wages exempt if supporting a family

Pennsylvania All wages exempt for most debts

South Carolina All wages exempt

Texas All wages exempt

“B” States Preserve 90% of the Debtor’s Wages

Iowa 90% to 97% of wages, depending on amount of annual earnings

Missouri 90% of wages for head of family

New Jersey 90% of wages if under 250% of federal poverty level

New York 90% of wages earned in the last 60 days, or 30 times state or federal minimum wage (now $7.25)

Virgin Islands 90% of wages

“C” States Protect Enough Wages So That Paycheck Does Not Drop Below the Poverty Level ($452.88 per week for family of four)

Alaska $2970 per month (about $691 per week, which is 95 times the federal minimum wage), if debtor’s income is sole support of household

Florida First $750 is exempt if wage earner is head of family

Wisconsin Federal poverty amount, based on family size, is exempt

“D” States Preserve More of a Worker’s Wages than the Minimum Required by Federal Law

California 40 times state minimum wage for individual; more if debtor proves higher amount is needed

Colorado 30 times state minimum wage ($7.78 per hour as of Jan. 1, 2013)

Connecticut 40 times state or federal minimum wage ($8.25 per hour)

Delaware 85% of wages

Hawaii All but 5% of the first $100 in wages, all but 10% of the next $100, and all but 20% of the remainder

Illinois 85% of wages or 45 times federal minimum wage

Maine 75% of wages or 40 times federal minimum wage (for consumer credit transactions)

Massachusetts 85% of wages or 50 times the greater of the state or federal minimum wage

Minnesota 75% of wages or 40 times federal minimum wage

Nebraska 85% of wages of head of household

Nevada 75% of wages or 50 times federal minimum wage

OUTDATED

©2013 National Consumer Law Center www.nclc.org32 No Fresh Start

STATE AMOUNT PROTECTED

“D” States Preserve More of a Worker’s Wages than the Minimum Required by Federal Law (continued)

New Hampshire 50 times federal minimum wage

New Mexico 75% of wages or 40 times federal minimum wage

North Dakota 75% of wages or 40 times federal minimum wage, plus $20 per dependent

South Dakota 80% of wages, or 40 times federal minimum wage plus $25 per dependent

Tennessee 75% of wages or 30 times federal minimum wage, plus $2.50 per week for each dependent child under age 16

Vermont 85% of wages or 40 times federal minimum wage; if debt arose from consumer credit transaction, more is protected if debtor shows need

Virginia 75% of wages or 40 times federal minimum wage

Washington 75% of wages or 35 times federal minimum wage

West Virginia 80% of wages or 30 times federal minimum wage

“F” States Protect Only the Federal Minimum

Alabama 75% of wages or 30 times federal minimum wage

Arizona 75% of wages or 30 times federal minimum wage

Arkansas 75% of wages or 30 times federal minimum wage

District of Columbia 75% of wages or 30 times federal minimum wage

Georgia 75% of wages or 30 times federal minimum wage

Idaho 75% of wages or 30 times federal minimum wage

Indiana 75% of wages or 30 times federal minimum wage

Kansas 75% of wages or 30 times federal minimum wage

Kentucky 75% of wages or 30 times federal minimum wage

Louisiana 75% of wages or 30 times federal minimum wage

Maryland 75% of wages or 30 times federal minimum wage

Michigan 75% of wages or 30 times federal minimum wage

Mississippi 75% of wages or 30 times federal minimum wage

Montana 75% of wages or 30 times federal minimum wage

Ohio 75% of wages or 30 times federal minimum wage

Oklahoma 75% of wages or 30 times federal minimum wage, but judge can protect more in case of hardship

Oregon 75% of wages or 30 times federal minimum wage

Puerto Rico 75% of wages or 30 times federal minimum wage

Rhode Island 75% of wages or 30 times federal minimum wage

Utah 75% of wages or 30 times federal minimum wage

Wyoming 75% of wages or 30 times federal minimum wage

OUTDATED

©2013 National Consumer Law Center www.nclc.org No Fresh Start 33

APPENDIX B PROTECTION OF THE FAMILY CAR

NCLC’s Model Family Financial Protection Act Recommendation: $15,000 car ($25,000 if adapted for disability), plus $10,000 wild card

STATE VALUE OF CAR PROTECTED

“A” States Protect an Average Used Compact Car from Seizure

Idaho $7000

Iowa $7000

Kansas $20,000

Louisiana $7500

Massachusetts $7500

Nevada $15,000

Oklahoma $7500

Puerto Rico No cap if vehicle used in occupation

Rhode Island $12,000

“B” States Provide At Least $9000 in Combined Exemption for Car and Household Goods

District of Columbia $10,650 but only if debtor does not claim homestead exemption

Indiana $9350

Mississippi $10,000

New Hampshire $4000 car, $1000 wild card, plus up to $7000 in unused exemption for tools, household goods, and certain other items

New Mexico $4000 car plus up to $5000 wild card if debtor does not claim homestead exemption

North Carolina $3500 car plus up to $5000 if debtor does not use homestead exemption

North Dakota $2950 plus up to $7500 wild card

South Carolina $5625 plus up to $5625 wild card

Tennessee $10,000

Texas $30,000 wild card ($60,000 for a family) that can be applied to household goods, vehicles, and various other items

Vermont $2500 plus up to $7000 of unused exemptions for other specified personal property

Wisconsin $4000 plus up to $12,000 wild card

“C” States Protect a Car Worth $5000 to $6999

Arizona $6000

Colorado $5000

Maine $5000

Maryland No specific protection; $6000 wild card is available but must also cover any household goods over $1000

OUTDATED

©2013 National Consumer Law Center www.nclc.org34 No Fresh Start

STATE VALUE OF CAR PROTECTED

“C” States Protect a Car Worth $5000 to $6999 (continued)

Virginia $6000

Washington $3250 plus $3000 wild card

West Virginia $5000

Wyoming $5000

“D” States Protect a Car Worth $1500 to $4999

Alaska $4050 in car worth not more than $27,000

California $2900

Connecticut $3500 plus $1000 wild card.

Florida $1000 plus unused homestead exemption up to $4000, which must also cover any household goods over $1000

Georgia $5000 exemption but must also cover household goods and other personal property

Hawaii $2575

Illinois $2400

Kentucky $2500

Minnesota $4600

Missouri $3000 plus $600 wild card ($1250 for head of family with additional $350 per dependent minor child)

Montana $2500

Nebraska $2400 (tools of trade exemption; must be used for work or commuting).

New York $4000

Ohio $3450

Oregon $3000

South Dakota $5000 wild card ($7000 for head of household), but must also cover household goods

Utah $3000

“F” States Provide No Realistic Protection for the Debtor’s Car

Alabama Protects just $3000 total for household goods, car, and tools

Arkansas Only protects car worth $1200, and then only if debtor files bankruptcy; otherwise a $200 exemption ($500 if married or head of household) must cover all personal property

Delaware Unless debtor files bankruptcy, only protection is a $500 wild card that must cover all property except bedding, clothing, and work tools

Michigan Protects car worth $1000 but only if used in debtor’s principal business or profession

New Jersey Protects just $1000 of real and personal property (plus $1000 for household goods and furniture).

Pennsylvania Protects just $300 total for household goods, car, and other personal property

Virgin Islands No protection

OUTDATED

©2013 National Consumer Law Center www.nclc.org No Fresh Start 35

APPENDIX C PROTECTION FOR THE FAMILY HOME

NCLC’s Model Family Financial Protection Act Recommendation: Median house price

STATE HOME EXEMPTION AMOUNT

“A” States that Protect the Family Home Regardless of Value

Arkansas (head of household only)

Limit on number of acres, but no dollar cap

District of Columbia (head of household only)

No dollar cap

Florida Limit on number of acres, but no dollar cap

Iowa Limit on number of acres, but no dollar cap

Kansas Limit on number of acres, but no dollar cap

Oklahoma Limit on number of acres, but no dollar cap

South Dakota Limit on number of acres, but no dollar cap

Texas Limit on number of acres, but no dollar cap

“A” States that Protect a Median-Priced Home ($211,312)

Massachusetts $125,000 (up to $500,000 if recorded homestead declaration)

Minnesota $390,000 ($975,000 if a farm)

Montana $250,000

Nevada $550,000

Rhode Island $500,000

“B” States Protect a Home Worth $100,000 to $211,311

Arizona $150,000

Idaho $100,000

New Hampshire $100,000

North Dakota $100,000

Ohio $125,000

Vermont $125,000

Washington $125,000OUTDATED

©2013 National Consumer Law Center www.nclc.org36 No Fresh Start

STATE HOME EXEMPTION AMOUNT

“C” States Protect a Home Between $50,001 and $99,999 in Value

Alaska $70,900

California $75,000, but $100,000 if married; $175,000 for certain elder, disabled, or low-income debtors

Colorado $60,000 ($90,000 if elderly or disabled)

Connecticut $75,000 ($125,000 for hospital debt)

Maine $47,500, but $95,000 if household includes dependent minor or if debtor or dependent is elder or disabled

Mississippi $75,000

Nebraska $60,000, but only for head of household or elder

New Mexico $60,000 ($120,000 if home is jointly owned)

New York $75,000 to $150,000, depending on county

South Carolina $56,150

Wisconsin $75,000

“D” States Only Protect a Home Worth $5001 to $50,000

Georgia $21,500

Hawaii $20,000 ($30,000 if head of household)

Illinois $15,000

Indiana $17,600

Louisiana $35,000

Maryland No homestead exemption, just $6000 wild card

Missouri $15,000

North Carolina $35,000 ($60,000 for certain elders)

Oregon $40,000 ($50,000 if married)

Puerto Rico $15,000 (head of family only)

Tennessee $5,000 to $25,000, depending on owner’s age, marital status, and minor children

Utah $30,000

Virgin Islands $30,000

Wyoming $20,000

“F” States Provide Little or No Protection for the Family Home

Alabama $5000

Delaware $500 wild card can be applied to home (head of family only)

Kentucky $5000

Michigan $3500

New Jersey None

Pennsylvania $300 wild card

Virginia $5000 (plus $500 per dependent); $10,000 for elder

West Virginia $5000

OUTDATED

©2013 National Consumer Law Center www.nclc.org No Fresh Start 37

APPENDIX D PROTECTION OF FAMILY HOUSEHOLD GOODS

NCLC’s Model Family Financial Protection Act Recommendation: All household goods, but creditor can seek court order to seize any item worth over $3,000

STATE AMOUNT OF PROTECTION FOR HOUSEHOLD GOODS

“A” States Protect All of a Debtor’s Necessary Household Goods

California All necessary household goods

Connecticut All necessary household goods

Hawaii All necessary household goods

Kansas All necessary household goods

Louisiana All necessary household goods

Maine All household goods and appliances as long as item value does not exceed $200, plus wild card of $400 to $6000 that can be used to protect more expensive items

New York All household furniture plus stove, refrigerator, and certain other items

Oklahoma All necessary household goods

“B” States Protect at Least $10,000 of Household Goods

District of Columbia $8,625 plus a wild card of up to $8075 if debtor does not claim homestead exemption

Massachusetts $15,000

Minnesota $10,350

Nevada $12,000 plus a $1000 wild card

New Hampshire $3500 plus a $1000 wild card plus up to $7000 of unused exemptions

North Carolina Up to $14,000 depending on number of dependents and whether debtor claims homestead exemption

Ohio $11,525

Texas $30,000 for individual, $60,000 for family

Washington $6500 for individual, $13,000 for married persons, plus $3000 wild card

Wisconsin $12,000

“C” States Protect $7000-$9999 of Household Goods

Idaho $7500

Indiana $9350, but must also cover motor vehicle

Iowa $7000

Mississippi $10,000 wild card ($50,000 for elders) but must also cover any motor vehicle

North Dakota $1000, plus $7500 if head of household or $3750 if individual

Rhode Island $9600

South Carolina $4500 plus up to $5000 of certain unused exemptions

STATE AMOUNT OF PROTECTION FOR HOUSEHOLD GOODS

OUTDATED

©2013 National Consumer Law Center www.nclc.org38 No Fresh Start

“C” States Protect $7000-$9999 of Household Goods (continued)

Tennessee $10,000 wild card but must also cover motor vehicle

Vermont $2500, plus $400 wild card and up to $7000 of unused exemptions for other specified personal property

West Virginia $8000 (plus $1000 wild card for head of household)

“D” States Protect $2,001-$6999 in Household Goods

Alabama $3000

Alaska $4050

Arizona $4000

Colorado $3000

Florida $1000 plus unused homestead exemption up to $4000

Georgia $5000

Illinois $4000

Kentucky $3000

Maryland $1000 plus $6000 wild card

Missouri $3000 plus $600 wild card (for head of family additional $1250 wild card and $350 per dependent child)

Montana $4500

New Mexico Furniture and books plus $500 wild card and up to $5000 of unused homestead exemption

Oregon $3000

South Dakota $5000 wild card ($7000 if head of household), which must also cover any motor vehicle

Utah $4000 plus appliances, food, and bedding

Virgin Islands $3000

Virginia $5000

Wyoming $4000

“F” States Protect Almost None of a Debtor’s Household Goods

Arkansas $200 ($500 if married or head of household), which must cover all personal property

Delaware Just apparel and bedding, plus $500 wild card, which must cover all personal property except work tools

Michigan $1000

Nebraska $1500

New Jersey $1000 household furnishings, plus $1000 wild card, which must also cover car, work tools, and other property

Pennsylvania $300 wild card, which must also cover car, work tools, and other property

Puerto Rico $850

OUTDATED

©2013 National Consumer Law Center www.nclc.org No Fresh Start 39

APPENDIX E PROTECTION OF FAMILY BANK ACCOUNTS

NCLC’s Model Family Financial Protection Act Recommendation: $10,000 in a bank account

STATE AMOUNT OF PROTECTION FOR FAMILY BANK ACCOUNTS

“A” States Protect At Least $1200 in Bank Account

Massachusetts $2500

New York $1740 (240 times the minimum wage), and a possible $1000 exemption in lieu of homestead exemption

Wisconsin $5000 ($10,000 for married couple)

“B” States Protect at Least $700 in Bank Account, Plus Car and Household Goods Worth At Least $9000, or That Explicitly Exempt Deposited Wages

California Protects deposited wages

District of Columbia Protects $8250 household goods, $2575 vehicle, plus $850 wild card that can be used for bank account

Florida Protects deposited wages

Hawaii Protects deposited wages

Iowa $1000 (cash, bank accounts, or any other personal property); also exempts $7000 in household goods and vehicle worth $7000

Minnesota Protects deposited wages

Mississippi $10,000 wild card that can cover car, household goods, and money

Montana Protects deposited wages

Nebraska Protects deposited wages; also provides $2500 wild card that appears to be available for bank account

Nevada Protects $400 in bank account, and $1000 wild card is also available; protects car and household goods worth more than $9000; also protects deposited wages

New Hampshire $3500 household goods, $4000 motor vehicle, plus $1000 wild card (increased to $5000 if debtor does not claim work tools) that can be applied to bank account

North Carolina $3500 car; $5000 household goods ( plus $1000 more per dependent, up to an additional $4000), plus wild card of $5000 of unused homestead exemption

North Dakota $2950 car, $7500 ($3750 if not head of family) wild card, plus additional $7500 wild card if debtor does not claim homestead exemption

Oklahoma Protects deposited wages

Oregon Protects deposited wages; also provides $400 wild card that appears to be available for bank account

South Carolina $5625 for motor vehicle, $4500 household goods, plus $5625 cash or liquid assets if debtor does not claim homestead

Tennessee $10,000 wild card that can be applied to household goods, car, and bank account

Vermont $700 in bank account; protects $2500 car and $2500 household goods but debtor who does not claim exemption for work tools or crops can exempt $7000 more

OUTDATED

©2013 National Consumer Law Center www.nclc.org40 No Fresh Start

STATE AMOUNT OF PROTECTION FOR FAMILY BANK ACCOUNTS

“B” States Protect at Least $700 in Bank Account, Plus Car and Household Goods Worth At Least $9000, or That Explicitly Exempt Deposited Wages (continued)

Washington $200 in bank account; $6500 household goods; $3250 motor vehicle; plus $3000 wild card, of which $500 can be used for bank account

West Virginia $1000 in bank account; $2400 motor vehicle; $8000 household goods

“C” States Protect at Least $700 in Bank Account, plus Car and Household Goods Worth Total of $7000

Connecticut All necessary household goods plus $3500 vehicle and $1000 wild card that can be applied to bank account (all necessary household goods plus $3500 vehicle is probably the equivalent of a combined exemption of $7000 so falls within this category)

Indiana $350 for bank account plus $9350 personal property

New Mexico $4000 motor vehicle, $5000 wild card if debtor does not claim homestead exemption; note that furniture is also exempt so New Mexico rates a high “C”

Virginia $5000 wild card for any property, plus $5000 for household goods and $6000 for vehicle

“D” States Protect Car and Household Goods Worth at Least $4000 to $6999, plus at Least $300 in Bank Account

Arizona $4000 household goods, $6000 car, but only $300 in bank account and no wild card that can be applied to bank account

Georgia $5000 wild card for all real and personal property

Illinois $2400 for motor vehicle, plus $4000 wild card that can be used for bank account and household goods

Maine $400 general wild card that can be applied to bank account, plus any household goods worth less than $200 per item and a car worth up to $5000, plus up to $6000 of unused homestead exemption, which that can be applied to household goods

Maryland $1000 for household goods, plus $6000 wild card that can be applied to bank account

Missouri $3000 household goods, $3000 car, and $600 wild card that can be applied to bank account

Ohio Protects $425 in bank account, $3450 motor vehicle, and $11,525 in household goods; no wild card that can be applied to protect more in bank account

South Dakota $7000 wild card ($5000 if not head of family) to cover car, motor vehicle, and bank accountOUTDATED

©2013 National Consumer Law Center www.nclc.org No Fresh Start 41

STATE AMOUNT OF PROTECTION FOR FAMILY BANK ACCOUNTS

“F” States With No Protection, or With Protection Only For Specialized Types of Accounts, or Provide Just a Wild Card of $3999 or Less for Bank Account, Household Goods, and Car

Alabama $3000 wild card must cover household goods, car, and bank account

Alaska $1400 ($2200 if sole support of household), but only if individual is not receiving earnings weekly, monthly, or semi-monthly; $4050 car, $4050 household goods

Arkansas $200 ($500 if married or head of household) for all personal property

Colorado No exemption that can be applied to bank account

Delaware $500 wild card must cover bank accounts and all personal property except bedding, clothing, and work tools

Idaho No exemption that can be applied to bank account

Kansas No exemption that can be applied to bank account

Kentucky No exemption that can be applied to bank account

Louisiana No exemption that can be applied to bank account

Michigan $1000 wild card but must cover household goods and vehicle

New Jersey $1000 wild card must cover all personal property except clothing and $1000 of household goods and furniture

Pennsylvania $300 exemption must cover all property

Puerto Rico No exemption that can be applied to bank account

Rhode Island No exemption that can be applied to bank account

Texas No exemption that can be applied to bank account

Utah No exemption that can be applied to bank account

Virgin Islands No exemption that can be applied to bank account

Wyoming No exemption that can be applied to bank account

OUTDATED

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Boston Headquarters:7 Winthrop SquareBoston, MA 02110-1245Phone: 617/542-8010Fax: 617/542-8028www.nclc.org

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OUTDATED