December 11, 2023 — Report

A Has strong protections in all five categories (no states)
B Has strong protections in most categories (15 states)
C Has many gaps and weaknesses (16 states)
D Has weak protections (17 states)
F Has extremely weak protections (5 states)

Every state has a set of exemption laws, intended to prevent creditors from pushing families into destitution. This report finds that few states’ exemption laws meet even the most basic standards.

Exemption laws are designed to protect consumers and their families from poverty, and to preserve their ability to be productive members of society and achieve financial rehabilitation.

This report details the extent to which states protect families and provides ratings in each of these five areas:

  • 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 are not cleaned out; and
  • Preventing seizure and sale of the debtor’s necessary household goods.
Best states

No state attains an A average on these basic protections. Arizona, which was the only state rated A last year, fell to a high B because its recently increased homestead exemption no longer protects a median value home. This is an illustration of the importance of future-proofing exemption statutes by either pegging them to a value (like median home value) or indexing them to inflation, so they increase as inflation increases. Nevada also rates a high B.

Three states, New Mexico, North Dakota and Washington, moved from Cs to Bs this year. New Mexico made a significant overhaul of its exemption statute, including greatly increasing the protections for a family car and home, allowing the use of the higher local minimum wage (rather than the stagnant federal wage) in wage protection calculations, and creating an explicit means of exempting a bank account. North Dakota and Washington both significantly increased their protection of the family car. Nebraska moved from a D to a C this year simply because it adjusted its protection of the family car for inflation, increasing the protection enough to qualify for a higher grade in that category.

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, Pennsylvania and Wyoming are nearly as bad, rating low D grades.

Key Recommendations

State exemption laws should be reformed to:

  • Protect a living wage—at least $1,000 per week, but more in high-cost states—for working debtors, including those paid as independent contractors, so that families can meet basic needs and maintain a safe, decent standard of living within the community.
  • Automatically protect a reasonable amount of money on deposit so that debtors have a cushion to cover several months of basic needs such as rent, daycare, utility bills, and commuting expenses. 
  • Preserve the debtor’s ability to work, by protecting a working car, work tools, and work equipment.
  • Protect the family’s housing and necessary household goods
  • Protect retirees from destitution by restricting creditors’ ability to seize retirement funds.
  • Automatically update for inflation.
  • Close loopholes that enable some lenders to evade exemption laws. For example, states that allow lenders to take household goods as collateral enable these lenders to avoid state protections of household goods. 
  • Be self-enforcing to the extent possible, so that the debtor does not have to file complicated papers or attend court hearings.