A recent study by the National Consumer Law Center gave Ohio a C grade for the protections it offers to debtors. Twenty-three other states also scored Cs. Ohio shouldn’t feel too bad, though. The study claims that not a single state met basic standards that would allow debtors to continue to support themselves and their families.
How can we protect families in debt?
In many states, debt collectors can take just about everything a debtor owns. Federal laws protect the bare minimum of a debtor’s assets: up to $22,975 of equity in a home, up to $3,675 of equity in a car, and up to $11,500 worth of other property. If the debtor has more than the allowable amount of equity in his home or car, debt collectors may sell those assets and pay $22,975 or $3,675 to the debtor in cash. 28 U.S.C.A. § 3014. In all likelihood, that won’t be enough to replace the home or the car. This can leave a debtor without a home, without household goods, and without a way to get to work. The NCLC study sets out several goals for fair debt collection. It suggests that debt collection laws should allow the debtor to continue to work, protect assets necessary to the wellbeing of the debtor’s family, and ensure that a debtor can earn a living wage. The law should leave enough money in debtors’ checking accounts to allow them to pay for rent, utilities, and other necessary expenses. Retirement accounts should be off-limits for collections to avoid leaving retirees destitute.
With an eye to these goals, the study sets out five basic standards for debt collection. A state would earn an A if it met all five standards. First, an A state would prevent debt collectors from seizing such a large portion of a debtor’s income that the debtor is left with less than a living wage. Second, it would allow the debtor to keep a car of average value or more. Third, it would protect a family home of at least median value. Fourth, it would prevent debt collectors from seizing and selling necessary household goods. Finally, it would protect at least $1200 in a checking account to allow the debtor to pay necessary expenses.
Where does Ohio fall?
We already know that Ohio scored a C on the NCLC’s five-point evaluation. Let’s look at how it fared on each point individually. Ohio received an F for protecting a debtor’s income; it only exempts the federal minimum of 75% of wages from collection or the excess of weekly earnings over $217.50, whichever is less. It received a D for its automobile protections – debt collectors can only seize and sell vehicles worth more than $3,675. For protecting debtors’ homes, Ohio earned a B. It protects up to $132,900 in home equity. Ohio also scored a B for exempting up to $12,250 in household goods. Finally, Ohio protects only $425 in a debtor’s checking account, earning it an F for that standard.
How could Ohio’s laws be improved?
The NCLC has published a model “Family Financial Protection Act” that sets out potential laws in line with its five standards for debt collection. This model law would protect a debtor’s disposable earnings for any week up to eighty times the federal or state minimum wage, whichever is larger. In Ohio, that means you could exempt $628 weekly (about $32,000 annually) after paying taxes and contributions to health insurance and retirement accounts. In contrast, current Ohio law exempts just $235 weekly. The model law suggests allowing debtors to keep a car worth up to $15,000 (or $25,000 if the car has been altered due to disability of the debtor or a debtor’s dependent).
Under the model law, a debtor would be able to exempt his home up to the median home value in the county. For example, the median home price in Montgomery County was $378,650 in October of this year. The model law would also exempt all household goods except for any single items worth more than $3000. It would allow a debtor to exempt one piece of jewelry regardless of value and additional jewelry up to $3,000 total. Finally, the model law exempts up to $240,000 in an educational expense account, up to $10,000 in cash or in a bank account, and up to $10,000 in any other funds or property. Added together, the model law would allow a debtor in Ohio to exempt about $688,000 plus household goods and one piece of valuable jewelry.
The Bottom Line
According to the National Consumer Law Center, institutional debt buyers purchased $143 billion in consumer debt in 2012. Consumers disputed a million of these debts. Of the disputed debts, half turned out to be unverifiable. That makes for a lot of expensive and time-consuming litigation, clogging up an already overloaded civil court system. Add to that the complaints of abusive debt collection practices, and you have a serious problem nationwide. Many states’ debt collection laws are stuck in the past – Vermont protects one cow, two goats, three swarms of bees, and a car worth less than $2,500. Debt is big business and debtors don’t enjoy much legal protection when collectors come calling. With this new study, the NCLC is bringing attention to out-of-date, often draconian debt collection laws and calling for better protection for debtors and their families.
SEE ALSO: Wage garnishment laws in Ohio