North Carolina has long balanced a creditor’s need to get paid with a consumer’s right to protect a limited amount of property from seizure by a creditor. State law currently prohibits wage garnishment or the seizure of the previous 60 days of wages from consumers when it can be shown that those earnings are “necessary for the use for a family, supported wholly or in part, by his labor.”
A bill recently introduced in the North Carolina Senate, Senate Bill 632, would change the law to allow judgment creditors to seize up to 25% of the post-tax income from those same earnings. As background, the delinquency rates on consumer debts soared during and after the recent mortgage crisis. People lost their jobs and their home equity was wiped away. Without steady employment or a safety net, many North Carolinians were simply unable to pay their debts. This lead to a steep increase in the number of lawsuits filed by debt collectors and predatory lenders.
Senate Bill 632 would benefit this type of large, institutional creditor the most because they have purchased bad debts or judgments for pennies on the dollar and collect on them for profit. On the other hand, consumers who clearly do not have the ability to pay would be forced to cut necessary items from their household budgets – food, health care, rent, and utilities.
For example, I recently met with a client working two jobs in the food industry struggling to make ends meet for her 4 year old daughter. The family of two has a net monthly income of $2,000, just barely a livable wage. Because there is no disposable income in the household budget, this hard working mother’s only choice is to focus on the needs of her daughter: food, shelter, health care, and utilities. Senate Bill 632 would strip this family of $500 a month and the basic necessities they need to survive.
As a practical matter, families most affected by this shift in North Carolina’s priorities would begin to file bankruptcy cases. I practice bankruptcy law in Asheville, and typically discourage consumers from investing the money they critically need to pay for life’s necessities in a bankruptcy filing. Senate Bill 632 would force the issue and lead to a spike in bankruptcy filings by 200% to 300% according to some industry experts. Money currently better spent on basic needs would end up in the pockets of attorneys.
Although I am a bankruptcy attorney, I strongly oppose imposing wage garnishment on North Carolina’s hard working families. Very few consumers choose to forego paying their debts when they have the ability to do so. Senate Bill 632 would do the most damage to families North Carolina exemption laws are designed to protect, and should be rejected.