Last fall, the National Consumer Law Center released a report, "No Fresh Start: How States Let Debt Collectors to Push Families into Poverty" in which it surveyed the exemption laws in each state. Exemption laws are laws that describe the limits of what a creditor can take from a debtor in order to collect on a judgment.
How much of a worker's paycheck can a creditor garnish? Can it foreclose on a debtor's home? Can it seize the debtor's car? What about household goods? Can a creditor take those to collect a debt?
These questions are largely answered by state, not federal, law. And, if you're a debtor in Kentucky, the answers are not good. The NCLC gave grades to all fifty states based on the protections the state has in place to ensure that a creditor's collection efforts cannot push a hard-working family into destitution.
Kentucky is one of four states to receive an "F". (Mississippi, Michigan, and Delaware were the other three.)
The NCLC graded the states on the following criteria:
- Preventing debt collectors 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;
- Preventing seizure and sale of the debtor’s necessary household goods; and
- Preserving at least $1200 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses.
Kentucky failed all of these tests.
- Kentucky workers can keep only 75% of their paychecks (or 30 times the federal minimum wage). Some states prevent garnishment of wages altogether. Others set the limit of what can be garnished at a much lower percent than 25% of a worker's check.
- Kentucky gets a "D" for protecting a debtor's car. Kentucky law protects cars up to $2,500 in value. Any more than that and a creditor can seize the car to collect on a judgment. Other states protect cars worth up to $20,000 (Kansas) while others set the limit much higher than the unreasonable $2,500 Kentucky law provides (many states protect cars worth up to $7,500 or $10,000).
- Kentucky homeowners who owe a creditor money have essentially no protection. Kentucky law protects the value of a home up to $5,000. NCLC rightfully gives this law an "F". Seven states protect homes from collection efforts regardless of value, while another 5 states protect homes up to the median value of a home ($211,312).
- Kentucky law protects $3,000 worth of a debtor's household goods. This earns us another "F". Eight states protect all necessary household goods and another nine protect at least $10,000 of household goods.
- Finally, Kentucky law provides no protection from seizure of funds in a debtor's bank account. Other states set a limit of $1,200: below that amount, creditor's cannot go. Another "F" for Kentucky.
The NCLC has drafted a Model Family Financial Protection Act that will protect the basic dignity and financial integrity of Kentucky's families, even those struggling to repay debts. I encourage my politically-minded friends and my friends that are legislators to take a close look at the NCLC's report and recommended legislation and work to do a better job protecting our families from debt collection efforts that push them into poverty and bankruptcy.
At Ben Carter Law, I defend people from baseless collection efforts, prosecute debt collection abuses, and help people file for bankruptcy to get a clean financial slate. But, I wish Kentucky's laws did more automatically to help families protect the basic necessities of life from collection efforts and trust that the day is coming that the legislature will change the laws to benefit Kentucky's families, not creditors.