Analysis Shows Bankruptcy Tied To Wage Garnishment
The Associated Press has done an analysis of bankruptcies and discovered that five states have significantly lower rates (-40%) of bankruptcy: Pennsylvania, North Carolina, South Carolina, Texas and Florida. All of the states have laws that limit wage garnishment to collect debt.
States that allow debt collectors to seize consumers’ wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.
This link highlights a dilemma for credit-card companies and other debt chasers: By going after wages — an increasingly popular maneuver since the recession began, lawyers say — they risk pushing consumers into bankruptcy court, where judges can reduce or wipe away all sorts of financial obligations.
This looks like a classic case of the rule of unintended consequences, yet it makes sense. People with a lot of debt generally try to balance which bills get paid but wage garnishment severely restricts this.
I hope Delaware will seriously look at these findings and adopt a law similar to the one in Pennsylvania.
Tags: Bankruptcy, Debt
We need to keep wage garnishment for alimony/child support though.
Yes, definitely X. I think Pennsylvania’s law allows garnishment for alimony, child support and tax bills.
Delaware exempts 85 percent of wages from wage attachment. The AP article doesn’t break down states by different exemption levels.
How much debt is the result of true misfortune but how much is the product of self-inflicted wounds?
Sometimes an ‘unjust’ debt can be fought. Extreme threats can result in cancellation, so this is a good thing.
How about phone bills that involve 900 number calls and things even worse? I remember some early Internet scams where calls were routed to some godawful part of the former USSR or Central America with ludicrous fees per minute of connection time. Verizon got their skim so they had a vested interest in the ripoff of the unwary consumer.
What about on-line gambling debts? While some would outlaw such foolishness, a better legislative remedy would have made any attempt at collection by credit card companies criminal.
There are ‘roaches’ in the world. These are the ones who regularly let ‘bad cars’ ‘go back’. Yet there are some sleazy car dealers who get away with treating people with good credit as ‘roaches’.
Yet a few ‘roaches’ do not justify some of the outrageous ripoffs of big banks. Some of these can support the finest politicians money can buy.
How much debt is the result of true misfortune but how much is the product of self-inflicted wounds?
Bad debts are self-inflicted wounds on the creditors part.
An individual’s debt is monitored and tracked in detail and the information is available to all creditors. So the creditors are responsible for managing their own risk exposures to any single debtor.
In the last decade or so, banks have been playing a game of changing the rules so they can deliberately violate traditional risk management rules to lend excess amounts for frivolous reasons, justified by ever higher fees and interest rates. It is a game that the banks usually win, but sometimes lose.