Pushed to Poverty: Debt Collectors Profit, Families Lose
Some states privilege debt collectors at the expense of working families
When a debt goes into collection, it can have a devastating impact on access to credit - and even the ability to access housing or get a job.
While it is important to pay back borrowed funds, it’s also important that individuals have the means to earn the money to repay their debts.
A new report from the National Consumer Law Center (NCLC) makes clear that states are not doing enough to protect assets from aggressive debt collectors. While seizing funds in bank accounts or other assets may enrich a debt collector, it may also rob someone of their ability to earn a living.
“State exemption laws provide critical protections for cars, work tools, gas money, and other basic essentials consumers need to remain in the workforce,” said Michael Best, senior attorney at the National Consumer Law Center and co-author of the report. “Exemption laws must be strong enough to protect families from poverty and allow families to recover financially after the collection of a debt.”
The five standards for rating states on their essential protections from debt collection include:
Preventing creditors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage for a family of four;
Allowing the debtor to keep a used car of at least close to average value;
Preserving at least a median-value home;
Preserving a basic amount in a bank account so that the debtor’s funds to pay essential costs such as rent, utilities, and commuting expenses are not cleaned out; and
Preventing seizure and sale of the debtor’s necessary household goods.
According to NCLC, 8 states do a terrible job of protecting families from egregious debt collection tactics:
Several states’ exemption laws severely hinder families’ ability to recover from indebtedness. These states allow creditors—or the debt collectors they hire—to seize nearly everything a debtor owns, even the minimal items necessary for the debtor to continue working and providing for a family. Georgia, Kentucky, Michigan, New Jersey, and Utah have long been the worst states, garnering ‘F’ grades. Indiana, Missouri and Wyoming have now joined their ranks.
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