NC wage-garnish bill would be blow to families, boon for bankruptcies
An op-ed in the News and Observer blasts a new proposal from the NC Senate that could lead to a massive increase in the number of bankruptcies in North Carolina. The bill would allow creditors to garnish wages of debtors and uses gross income minus taxes to calculate what the bill calls "disposable income." By that definition, all money spent on food, housing, etc would be disposable and subject to wage-garnishment.
Let’s think about how this would play out in the real world. Consider a single mother with two children who earns $42,000 a year as a state employee. From her gross monthly pay of $3,500, $700 is deducted for taxes, $210 for retirement and $200 for medical insurance, leaving her with take-home pay of $2,390. No one can dispute that she needs all $2,390 to support her family. However, Senate Bill 632 would allow a creditor to garnish $700 from her pay, leaving her with only $1,690. The consequences would be devastating to her family.
As a practical matter, the only refuge for such an unfortunate wage earner would be to file bankruptcy. But here’s the rest of the story: North Carolina has one of the lowest bankruptcy filing rates in the nation. For the first quarter of 2014, the national average for bankruptcies was 3.23 for every 1,000 people. North Carolina ranked 40th among the states with a rate of 1.82.
By contrast, the rates in our sister Southeast states that allow wage garnishment along the lines of Brock’s proposal are the highest in the nation. Tennessee is first with a rate that’s 350 percent of North Carolina’s. Georgia and Alabama are second and third with three times the North Carolina rate. Virginia has a rate 70 percent higher than North Carolina. South Carolina, which has no wage garnishment, has a filing rate 13 percent lower.
The conclusion from all this is inescapable: If the General Assembly and Gov. Pat McCrory enact a law that dramatically expands wage garnishment in our state, bankruptcy filings will soar 200-300 percent.
As a bankruptcy lawyer who has represented debtors for over 30 years, I don’t find these statistics surprising. Contrary to conventional wisdom, people are not quick to file bankruptcy. Whether their reluctance emanates from embarrassment, a sense of defeat or simple personal morality, most will not file until they see no alternative – until they have to. For thousands upon thousands, expanded wage garnishment will provide the “have to.”
So, while the Senate proposal is clearly in the best financial interests of bankruptcy lawyers, it is bad public policy, and I strongly urge state lawmakers to reject it.