Download the full report, state maps, and state-specific information
BOSTON – With millions of families struggling to find financial stability as soaring inflation drives up the costs of basic necessities, states have a vital role in protecting households from seizure of essential wages and property to pay old debts.
A new report from the National Consumer Law Center (NCLC) grades each state on its exemption laws, which protect income and property from seizure by creditors, debt buyers, and the debt collectors they hire.
“In states with weak exemption laws, working families are at risk of falling deeper into financial peril if their wages and bank accounts can be seized as they struggle to pay for heat, food, and other necessities,” said Michael Best, staff attorney at the National Consumer Law Center. “Weak protections for the income and assets that families need imperil their health and safety, push them deeper into poverty, and can widen the racial wealth gap.”
NCLC’s annual survey of exemption law in the 50 states, District of Columbia, Puerto Rico, and the Virgin Islands finds that not one jurisdiction meets five basic standards:
- Preventing creditors 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 basic amount in a bank account so that the debtor’s funds to pay essential costs such as rent, utilities, and commuting expenses and to weather income and expense shocks are not cleaned out; and
- Preventing seizure and sale of the debtor’s necessary household goods.
Better states: Arizona went from a D in last year’s report to the highest grade in the nation with an A this year. An Arizona ballot initiative increased a wide array of protections, from wage and bank account seizure to the family home and household goods, but the state still falls short of protecting a living wage. Massachusetts, which modernized its archaic exemption laws in 2010, and Nevada, which also recently improved its laws, come next closest to meeting these five basic standards, each rating a high B grade. Solid B states include Connecticut, the District of Columbia, Maine, Puerto Rico, and Texas, while California, New York, Oklahoma, and South Carolina rate low 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 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 are the worst and rate an F. Meanwhile, Arkansas, Pennsylvania, and Wyoming are nearly as bad, rating low D grades.
States that made significant improvements since NCLC’s 2021 report: During the past 12 months, Arizona, California, and Colorado made particularly significant improvements.
State exemption laws are a fundamental protection for families. Without these laws, once a creditor obtains a ruling from a court that a consumer owes it a sum of money, the creditor can seize the debtor’s entire paycheck, bank account, car, and household goods, and sell the debtor’s home. Exemption laws place limits on these seizures.
Without improved exemption laws, seizures by debt collectors drain away the wages and resources that families need—and that the local economy needs them to be spending at Main Street businesses. Reform of exemption laws not only protects families from destitution but can also act as an economic stimulus tool that steers money into state and local communities.
For more information on NCLC’s work related to fair debt collection, visit nclc.org/topic/debt-collection
Related NCLC materials
Model Family Financial Protection Act
State Debt Collection Fact Sheets
Fair Debt Collection and Collection Actions (legal treatises):
Surviving Debt (consumer book) and Consumer Debt Advice (free articles)
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