All states have at least some exemption laws, which are laws that exempt certain amounts of a debtor's money or personal property from collection by a creditor. These laws are designed to prevent creditors from entirely bankrupting debtors and their families, and forcing them into destitution. Exemption laws vary greatly between the states, and last month, the National Consumer Law Center ("NCLC") produced a report summarizing these laws across the country and rating each state based on its level of consumer protection. (You can find the full report here: http://www.nclc.org/issues/no-fresh-start.html).
The exemption laws most come into play when a creditor sues a debtor, and obtains a judgment against the debtor. This judgment then entitles the creditor to engage in certain collection activity in order to enforce that judgment. The collection actions allowed vary by state, but typically include things like a creditor seeking to seize property, ordering the debtor's employer to withhold a portion of the debtor's wages, or ordering a bank to freeze the debtor's account or to take money from that bank account and hand it over to the creditor. A judgment creditor can also place a "judgment lien" on the debtor's real estate, which compromises the debtor's interest in that property and can create problems for the debtor if he or she attempts to sell that property.
A state's exemption laws act as the barrier between a judgment creditor and the debtor, and designate what the creditor can and cannot attempt to take from the debtor. Many states' exemptions laws require the debtor to act affirmatively in order to take advantage of the protection of these laws. The procedures in which the debtor must engage can be confusing and overwhelming for the average consumer without the assistance of an attorney.
The report analyzed the different protection laws and found that overall many states allow debt collectors to push families into poverty and destitution. New York was graded a "B" for its overall protections. Read about the details below.
A wage garnishment is when a judgment creditor orders a debtor's employer to withhold a certain amount of their regular paycheck, and to send that money directly to the creditor. Some states don't allow wage garnishments at all. Federal law protects from garnishment whichever is greater: 75% of a wage earner's paycheck, or 30 times the federal minimum wage. Thus, a wage garnishment that reduces a debtor's paycheck to below $217.50 would not be allowed. However, the NCLC report found that a weekly paycheck of $217.50 places even a single individual who has no dependents below the federal poverty line. If an individual has dependents, this amount would clearly be far below the federal poverty guidelines.
There are some states that protect more of a worker's wage than the federal minimums. In New York, 90% of the debtor's wages are protected. These protections are such that a debtor will be able to maintain at least a poverty-level wage, and not below, earning the state's wage garnishment protections a grade of "B" from NCLC.
Every state allows a creditor to seize funds in a bank account in the debtor's name once it ahs obtained a judgment. NCLC points out that protecting bank accounts is especially important in today's world, where individuals regularly have their wages directly deposited into a specific bank account. If a creditor were able to seize the entire contents of such an account, the federal or state protections relating to wage garnishments would effectively be nullified.
NCLC rated New York an "A" for its bank account protections because it requires that a creditor must leave at least $1,200 (*increased to $1,920) in a debtor's bank account, which allows a debtor enough money to pay basic expenses and keep him or herself afloat.
Personal and Real Property
Some states protect the cars or homes of a judgment debtor. Many individuals require the use of a car in order to travel to work and earn a living, and of course, an individual without a home would experience such serious instability that it would be difficult to maintain a job or keep their family together.
When it comes to exemptions for the home, New York's laws protect a home between $50,000 and $99,999 in value (*recently increased to the range between $75,000 to $150,000), earning the state a "C" grade for this particular exemption. NCLC found that this amount is only sufficient to protect about half the median value of a home, and since that median value is not uniform across the county, its possible that the law would only be protecting a very modest home.
The NCLC study found that New York only provides enough of an exemption for a car that a debtor would be able to keep a very low value car, between $1,500 and $4,999. The organization reported that the average price of even the lowest-priced category used car is $7,097, as of May 2013. Consequently, NCLC rated New York a "D" for this particular exemption, and suggested that the state adopt a protection policy for a car worth up to $15,000. This would allow debtors to remain productive members of society and able to support their families.
Overall, New York received a "B" because it has "fairly strong protections in most categories," although NCLC notes there is clearly room for improvement. One of the biggest concerns, the organization notes, is closing loopholes that allow creditors to evade certain protections, such as the ability to seize funds directly deposited as wages.
If you have questions about how to protect yourself against creditors, or if you need assistance fighting a bank restraint, wage garnishment, or other judgment enforcement, contact The Langel Firm today.