Weak State Exemption Laws Allow Debt Collectors to Push Families Into Poverty

December 18, 2024 — Press Release

Annual Report Grades the Strength of State Protections for Family Finances; No ‘A’s’; 8 ‘F’s’: GA, IN, KY, MI, MO, NJ, UT, and WY 

WASHINGTON – As working families continue to struggle through a perfect storm of historically high inflation, all-time high credit card interest rates, an ever-growing cascade of junk fees, and record-breaking consumer debt, a new report finds that not one state or jurisdiction sufficiently protects its residents’ homes, vehicles, belongings, and family finances – and some fail miserably.

“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 National Consumer Law Center (NCLC) report, No Fresh Start 2024: Will States Protect Families from Debt Collectors Seizing Wages and Bank Balances?, grades each state on its exemption laws–fundamental safeguards that protect family income and property from seizure by creditors, debt buyers, and debt collectors. These laws are designed to protect consumers and their families from poverty and to preserve their ability to rehabilitate their finances and be productive members of society.

These protections are critical as families reel from historically high inflation. Yet NCLC’s annual survey of exemption laws 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 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. 

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. 

This year’s report updated the rating scale to reflect inflation.  It also introduced new rating criterion for protection of a basic amount in a bank account–whether it is self-executing.  If a debtor has to file paperwork in court, take time off from work to appear at court hearings, or hire a lawyer to claim the protection, it is unlikely to be of much help to a struggling family.

Best states: While no states achieve an ‘A’ grade for 2024, Arizona, California, Massachusetts, New Mexico, Puerto Rico, and Texas achieve ‘B’ grades. 

Under the updated grading criteria, Connecticut, the District of Columbia, Maine, Nevada, New York, North Dakota, Oklahoma, South Carolina, and Washington slid to a ‘C’ in 2024 from a ‘B’ in 2023.

Worst states: 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.

The report also examines how the historic racial wealth gap creates a more significant debt burden for Black and Latino/Hispanic families. When hit with challenging financial times, Black and Latino/Hispanic households have less of a financial safety net to draw on. Black and Latino households are also more likely to experience unemployment and are disproportionally represented in the poverty population.

“State protections limiting the seizure of consumers’ income and assets by creditors is particularly important for communities of color, as weak exemption laws widen the racial wealth gap,” said Carolyn Carter, deputy director at the National Consumer Law Center and co-author of the report. “Communities of color are  disproportionately burdened by debt and are more likely to face judgments in collection lawsuits and be subject to wage seizure.”

Strong 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. Strong state exemption laws can deter predatory lending, protect residents from impoverishment, and save taxpayers money.

Related Resources

• No Fresh Start 2023: Will States Let Debt Collectors Push Families Into Poverty as Economic Uncertainty Looms?
• 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)