Annual Report Grades the Strength of State Protections for Family Finances; No State Earns an A; Georgia, Kentucky, Michigan, New Jersey, and Utah Get Failing Grade
WASHINGTON – As many consumers grapple with economic uncertainty and with rising prices for basic necessities, state exemption laws can provide a fundamental safeguard for families. But a new report finds that not one state or jurisdiction meets five basic standards for consumer protection.
“Exemption laws are designed to protect consumers and their families from poverty and to preserve their ability to be productive members of society,” said Michael Best, senior attorney at the National Consumer Law Center and co-author of the report. “These protections are particularly important as the costs of basic necessities have increased, the labor market shows signs of cooling, and families no longer have pandemic protections.”
The National Consumer Law Center (NCLC) report, No Fresh Start 2023: Will States Let Debt Collectors Push Families Into Poverty as Economic Uncertainty Looms?, grades each state on its exemption laws, which protect income and property from seizure by creditors, debt buyers, and the debt collectors they hire.
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 are not cleaned out; and
- Preventing seizure and sale of the debtor’s necessary household goods.
The report details the extent to which states protect families in each of these five areas. It grades the states on each protection and determines each state’s overall average.
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 homestead exemption, although recently increased, has been overtaken by inflation and no longer protects a median value home. Nevada also rates a high B.
States that made significant improvements since NCLC’s 2022 report: 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.
“Without exemption laws, seizures by debt collectors drain away the wages and resources that families need,” said Carolyn Carter, deputy director at the National Consumer Law Center and co-author of the report. “Reform of exemption laws not only protect families from destitution but can also act as an economic stimulus tool that steers money into state and local communities.”
- No Fresh Start 2022: Will States Let Debt Collectors Push Families Into Poverty as the Cost of Necessities Soars?
- 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)