PROVIDENCE – Rhode Island’s state exemption laws, which protect a debtor’s essential income and property from seizure by creditors, scored a “C” in a National Consumer Law Center report published Thursday.
Not one U.S. state achieved a perfect “A” score, the center said. Massachusetts’ score of “B+” ranked as the highest score in New England and one of the highest nationally.
“Exemption laws are particularly important because they protect cars, work tools and other property that debtors need to stay in the workforce,” according to the National Consumer Law Center report. “When debtors lose their jobs, the consequences fall not just on the debtors and their families, but also on landlords, local merchants and other creditors that the debtor might have paid. By protecting families from impoverishment, exemption laws also save costs that taxpayers would otherwise have to bear for services such as emergency shelter and foster care.”
Exemption laws may also deter predatory lending, the center said, as creditors are less likely to make unaffordable loans if they know they will have to rely on the debtor’s ability to repay the debt and not on seizure of the debtor’s essential property.
To achieve a top score, a state’s exemption laws must meet five basic standards:
- Prevent debt collectors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage
- Allow the debtor to keep a used car of at least average value
- Preserve the family’s house--at least a median-value home
- Prevent seizure and sale of the debtor’s necessary household goods
- Preserve at least $1,200 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities and commuting expenses
Although Rhode Island laws scored an “A” on the standards protecting a debtor’s car and home, the state fared worse on the protection of a living wage and bank account funds, which both scored an “F” in the National Consumer Law Center report. Rhode Island only protects the minimum wage amount mandated by federal law and provides no exemption that can be applied to a debtor’s bank account.
On the standard preventing seizure and sale of a debtor’s necessary household goods, Rhode Island scored a “C.”
Massachusetts scored an “A” on the standards protecting a debtor’s car, home and bank account, but fell short in the protection of minimum wages, scoring a “D.” While Massachusetts protects more of a debtor’s wages than the federal minimum, it does not ensure that the individual’s paycheck remains above the poverty level.
The Bay State scored a “B” in the protection of a debtor’s necessary household goods.
In New England, New Hampshire scored the second-best overall score with a “B-” followed by Connecticut, Maine and Vermont which all matched Rhode Island’s “C” score.
The worst-rated U.S. states in National Consumer Law Center report were Alabama, Delaware, Kentucky and Michigan with overall scores of “F” for their state exemption laws.