Alabama law contains only a few weak protections for its residents that find themselves with significant amounts of debt, a new report shows, making it one of the worst places in the nation to find one’s self in debt.
Composed by the National Consumer Law Center, the report — titled “No Fresh Start: How States Let Debt Collectors Push Families Into Poverty” — gives Alabama an “F” grade for its debt protection laws. Just three other states received “F” grades (Delaware, Kentucky, Michigan).
The NCLC argues that stronger exemption laws can help debtors recover more quickly. Protecting the home and a vehicle can allow someone with significant debt to continue working, for example — but those protections are not in place in Alabama, the NCLC found.
States were graded on several criteria, which are listed below, along with how Alabama fared on each component:
– Wage Protection (Grade – F): Only 75 percent of a debtor’s wages, or 30 times the federal minimum wage, is protected from garnishment in Alabama. That’s the federal minimum required protection, and law in 20 states.
– Vehicle Protection (Grade – F): Alabama law caps the protection of possessions owned at $3,000 in value, and includes vehicles, household goods, and bank accounts in the same bundle. Just five other states received an “F” for this category.
– Home Protection (Grade – F): The cap on home value protection in Alabama makes the benefit essentially nonexistent: only homes valued under $5,000 are protected by law. At the other end of the spectrum, 19 states set their home value protection caps at $100,000 or higher, and seven states go so far as to protect the home from seizure regardless of its value.
– Household Goods Protection (Grade – D): Up to $3,000 worth of household goods are protected in Alabama, better than six other states. But this includes any vehicles and bank accounts as well.
– Bank Account Protection (Grade – F): Again, debtors’ bank accounts are included in the $3,000 “bundle” of protected goods. In 10 states, bank accounts are completely vulnerable to seizure.