Pennsylvania gets harsh debt grade

Outdated laws in Pennsylvania fail to protect low-income families from having their homes and other necessities seized by debt collectors, endangering struggling households and putting them at risk of sinking into poverty, according to a new report by the National Consumer Law Center.

All states have their own set of laws intended to prevent creditors from pushing debtors into destitution and help ensure that they stay in the workforce. But the laws vary widely in the amount of income and property that they protect.

Overall, Pennsylvania was among six states earning a "D-" from the Boston-based advocacy group for having especially weak protections. Only four states were rated worse.

The only thing that saved Pennsylvania from an "F" was that the state goes beyond the federal minimum in protecting a worker's paycheck from being garnished by a creditor.

In Pennsylvania, all wages generally are exempt from debt collection, while federal law only requires that 75 percent be exempt. In contrast, 19 states and Washington, D.C., use the federal minimum, the report said.

Wages aside, Pennsylvania received the worst possible scores for providing little or no protection for the family car, house, household goods or bank account.

The state protects clothing, Bibles, school books, sewing machines and military uniforms. Beyond that, it only allows for a wild card exemption totaling $300 to cover a car and the rest of the four major categories.

In Pennsylvania, "Creditors can clean out a debtor's home, taking virtually everything," the report said. "Nor is there any protection for the debtor's home, car or work tools."

The best grades were earned by Massachusetts and Iowa, which each received a "B+." Seven states, including New York, earned a "B," while Washington, D.C., and New Hampshire got a "B-."

Pennsylvania's neighboring states of Ohio and West Virginia both earned a "C."

The five states that joined Pennsylvania in earning a D- were New Jersey, Arkansas, Georgia, Utah and Wyoming. The "F" states were Alabama, Delaware, Kentucky and Michigan.

"Sadly, not one jurisdiction's laws meet basic standards so that debtors can continue to work productively to support themselves and their families," keeping them off public assistance, the law center said in a news release.

The law center urged states to change their laws to allow minimum levels of protection. The center recommended shielding homes worth up to the median value in the area, plus all household goods (except for individual items worth more than $3,000), a vehicle valued up to $15,000 and at least $1,200 in a bank account.

Strong protections are even more important in light of the rapid growth recently in the debt-buyer industry and problems with abuses, including going after debts without documentation that the money is actually owed, the report said.

The trade association for debt collectors -- ACA International -- was quick to criticize the findings, calling the report "lacking of real substance" and focused on state law "that applies in extreme circumstances."

Legal action, garnishment and repossession "are actions of last resort by creditors after all other attempts to work with a consumer to resolve a rightfully owed debt have failed," the group said in a statement.

The law center also urged states to make protections self-executing. That would mean debtors don't have to file complicated papers or attend court hearings to invoke them.

For the full report, titled "No Fresh Start," visit the National Consumer Law Center website at www.nclc.org.

Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066.