In a new report, the National Consumer Law Center (NCLC) graded state “exemption laws” intended to protect struggling families from creditors. Few places were found to have satisfied five basic standards for protecting consumers: preserving at least $1,000 in a bank account and barring creditors from seizing vehicles, household goods, homes, and most wages.
Massachusetts and Iowa ranked highest in those standards, each receiving a B-plus grade; but states like Maryland and Virginia received D's. Federal laws mostly address personal bankruptcy, leaving states to keep consumers from becoming destitute when paying off debts. Some states' weak exemption laws come from a failure to update statutes, said the researchers. "Almost all states exempt a pair of cows and an ox, but they haven't exempted computers or a car that actually works," notes NCLC deputy director Robert Hobbs.
About 30 million Americans have an average of $1,500 in debt, according to the Consumer Financial Protection Bureau. Since the financial crisis, state authorities and advocacy groups have learned of alarming tactics used by some collectors to get consumers to settle debt. A 2011 report by Consumers Union found an increasing number of lawsuits filed against borrowers without proper documentation, including suits over debts already paid.