Opinions and Legal Insights

NCLC report: States that Put Families at Risk of Poverty During the Covid Crisis

The National Consumer Law Center issued a report on the impact of debt-collection during the pandemic and state laws that help, or harm, struggling families. From NCLC’s press release:

As millions of families suffer job loss or struggle to pay bills during COVID-19, states have an important role in protecting them from seizure of essential wages and property to pay old debts. A new state survey from the National Consumer Law Center finds that not one jurisdiction’s laws meet basic standards so that debtors can continue to work productively to support themselves and their families. No Fresh Start 2020: Will States Let Debt Collectors Push Families into Poverty in the Wake of a Pandemic? surveys the exemption laws of the 50 states, the District of Columbia (D.C.), Puerto Rico, and the Virgin Islands that protect wages, assets in a bank account, and property from seizure by creditors. “By reforming their exemption laws, states will not only protect families from destitution but will promote economic recovery by enabling families to spend their money in state and local communities,” said Carolyn Carter, National Consumer Law Center deputy director and author of the report.

The COVID-19 pandemic has exposed the enormous gaps in the states’ exemption laws. Only when stimulus checks were deposited in families’ bank accounts and garnished by debt collectors did many states realize that they had no state laws to protect a basic amount in a family’s bank account. Once the pandemic recedes, families struggling to get back on their feet are likely to face a wave of debt collector lawsuits for medical bills, back rent, credit card debt, the balance due on repossessed cars, and even utility bills.

Weak exemption laws also exacerbate the racial wealth gap. Communities of color are disproportionately burdened by debt, disproportionately subject to judgments in collection lawsuits, and disproportionately subject to wage garnishment. Because of longstanding discrimination, Black and Latinx households have less wealth and less of a safety net to draw on during challenging financial times. Communities of color have disproportionately suffered the effects of the pandemic — not just job loss and financial hardship but also illness and death.