The National Consumer Law Center (NCLC) recently published a study evaluating state law protections for debtors and their families. It found that not a single state provided adequate protections to allow debtors to continue to work and provide for their families. In 2012, 25% of the complaints received by the FTC related to debt collection. It’s a national problem and New Jersey is one of the worst offenders. It was one of six states to receive the second-lowest overall score, a “D-.”
The Study Criteria
The study set out five basic standards with which to evaluate states’ debtor protection laws. First, it examines whether debt collectors can take so much of a debtor’s wages as to push the debtor below a living wage. Second, it looks to whether a debtor can keep a car of average value. Third, it looks to whether a debtor can keep a median-value family home. Fourth, it examines protections for necessary household goods. Finally, the study looks to how much cash a debtor is allowed to keep for the purposes of paying utilities and other necessary expenses.
New Jersey’s Scores
We already know that New Jersey received the lowest score. Let’s look at its scores for individual study categories. If you make more than 250% of the federal poverty level (which works out to $37,500), debt collectors can garnish 25% of your after-tax wages. If you make less than that, collectors can only garnish 10% of your after-tax wages. For this protection of low-income debtors, New Jersey earned a “B.” In contract, New Jersey earned an “F” for protecting only $1,000 of household goods, plus a $1,000 wildcard that can be used to protect anything, including a car, cash, and consumer goods. Realistically, that’s no protection at all. This earns New Jersey scores of “F” for protection of household goods, cars, and bank accounts. Finally, New Jersey received an “F” for giving no protection to a family home. Debt collectors can put a lien on your home and sell it, period.
How can we improve protections for debtors?
The NCLC set out a list of recommendations for how to better protect debtors. It suggests that the law protect a debtor’s ability to work by protecting transportation, equipment and tools, and money for work expenses. It suggests protecting family housing, household goods, and means of transportation. The NCLC wants the law to ensure that debtors can keep a living wage and a reasonable amount of money in a bank account for expenses. It suggests protecting retirement funds from collectors to avoid leaving retirees destitute. It also wants the laws to apply to all collectors; some states allow payday lenders to skirt normal exemption laws. Finally, the law should be as self-enforcing as possible in order to avoid the time and expense of filing complex paperwork.
How could New Jersey meet the NCLC’s recommendations?
In order to score an “A,” New Jersey would have to protect 100% of debtors’ wages from garnishment. It would also have to protect all work-related equipment and household goods. It would have to protect a car of average value. Other “A” states protect between $7,000 and $20,000 of equity in a car. New Jersey would have to protect at least $1200 in a bank account to earn an “A” for that category. Finally, New Jersey would have to either protect the home regardless of value or protect up to $211,312 (the national median) in home equity.
The study makes it clear that New Jersey fails to protect its debtors from destitution. Contact your local representatives and give your support to improving debtor protection in New Jersey.