Assemblyman Dan Hutchison (D-Gloucester) is the prime Assembly sponsor of a bill that would prevent creditors from wiping out the bank accounts and seizing the homes of people who struggle to pay their debts. (Dana DiFilippo | New Jersey Monitor)
Debt collectors would be prevented from taking people’s homes and wiping out their bank accounts under legislation advocates are pushing state lawmakers to pass in the new year.
Assemblyman Dan Hutchison (D-Gloucester) is the prime sponsor of a bill intended to keep people in debt from falling into poverty by creating new homestead and bank account exemptions and raising the existing exemption for household goods.
“It’s going to allow grandma to keep her mobile home and be able to get rid of a lot of debt. The benefit of that is she’s not going to hit the street — that’s the goal,” Hutchison said.
New Jersey has so few protections for indebted residents that the National Consumer Law Center has given the state an F grade for years on its annual evaluations of states’ exemption laws, which safeguard property and income from creditors who would otherwise seize everything.
Beverly Brown Ruggia, financial justice program director for New Jersey Citizen Action, said such protections are especially important now, a time when soaring home costs, inflation, high interest rates, burdensome student loans, and medical and consumer debt have left many families struggling.
“No one should be debt-collected into the street,” Ruggia said. “If you end up with zero money in your account because of debt collection, you can’t get to work, can’t feed your family, can’t pay for transportation. So then how are you going to pay the rest of the debt? From a practical and just an ethical human-decency standpoint here, people should be able to do those things.”
The bill now in the Statehouse sets exemption amounts that Hutchison, a bankruptcy attorney, said are not in sync with other states and will be amended before it gets a hearing.
Under the current bill, up to $300,000 of a home and $10,000 of a bank account (or $15,000 for joint bank accounts) would be protected from creditors, and an existing $1,000 exemption for household goods would be bumped to $15,000.
Hutchison said he plans to reduce those amounts to $75,000 of a home and $3,000 in a bank account and tighten the bill’s definition of household goods. He has a few other tweaks in mind, with an eye on balancing the concerns of struggling families and those looking to recover owed debts.
“I think I’ve gotten one side pretty irritated with me, and the other side is equally pretty irritated with me, too, so that means that I’ve done my job,” Hutchison joked.
Exemption laws should allow families to keep enough in the bank to cover essentials like rent, utilities, and commuting; prevent the seizure and sale of necessary household goods, including work tools; allow a debtor to keep a used car of average value; and prevent creditors from seizing so much of a debtor’s wages that they push the debtor below a living wage, according to the National Consumer Law Center.
Individual bankruptcies are climbing in New Jersey, Hutchison said. The number of residents living in poverty has declined slightly in recent years, but disparities persist, with people of color, women, people with disabilities, children, and elderly people more likely to be living in poverty, state data shows.
Hutchison blamed a consumer culture that encourages people to spend more than they can afford.
“Next week’s paycheck is already spent. People are really two missed paychecks away from needing to file bankruptcy,” he said. “We’re going to come to a critical mass where the bottom is going to fall out.”
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