Our economy relies on credit. Without available credit, it would shrink drastically. And when people don’t pay their bills, borrowing costs go up for those of us who do.
That’s why we’re so concerned about a serious threat to debt collection in Michigan—pending House Bill 4900 and Senate Bill 408. If passed and signed into law, the proposed changes would limit future extensions of credit and harm the economy. As a friend and former colleague wrote in the Holland Sentinel last fall, “Congratulations, Michigan (for being ranked by CNBC as one of the top 10 places to do business). Now don’t screw it up.”
The proposed legislation would do just that—screw up our economic progress by severely restricting creditors’ ability to collect judgments in the state in five significant ways:
1. Limiting Wage Garnishments.
A common tool to collect judgments in Michigan is wage garnishment, but the proposed legislation would exempt the first $60,000 earned by a judgment debtor ($89,000 if the minimum wage is increased to $15/hour). Only 10% of wages exceeding those income thresholds could be garnished; 15% over an even higher threshold.
2. Restricting Bank Garnishments.
The proposed legislation would also exempt the first $17,000 in a bank or credit union account for any commercial or consumer debtor. Worse yet, the judgment debtor would get 15 days’ notice before a writ of garnishment is issued, giving the account holder plenty of time to draw down or move the funds.
3. Eliminating State Income Tax Garnishments.
Another great tool for collection in Michigan is the ability to garnish state income tax refunds. That would no longer be allowed for judgments based on consumer debts.
4. Practically eliminating Orders to Seize.
One debtor could use the new exemptions to protect up to $25,000 in value for one motor vehicle and up to $15,000 for any other vehicles he or she owns. Since many vehicles are already encumbered to a lienholder, this would make the seizure of motor vehicles almost obsolete.
5. Limiting the reach of Judgment Liens.
In Michigan, a Notice of Judgment Lien can’t be foreclosed, but it’s a useful collection tool when real property is sold or transferred. Under the proposed legislation, Michigan residents would be able to exempt $250,000 in homestead value–$350,000 if they’re 65 or older or disabled. That equity would be shielded from a Notice of Judgment Lien.
In addition to these five major changes, the proposed legislation also puts banks and credit unions at risk of litigation for noncompliance. It places heavy burdens on the institutions to look back to make sure the funds they hold are not exempt. Even the proceeds from the sale of exempt property would retain the exemption for 18 months if the funds are in the bank.
Proponents of this legislation claim it will only affect debt collectors. That’s why they’re trying it in many other states as well. However, this would affect small businesses and the ability of all of us to get credit—for homes, cars, or other purchases. Please join us in telling our Michigan legislators that the pending bills are bad for business and bad for their constituents.
At Dalton & Tomich, we help creditors collect money they are owed. Whether it’s under the current laws or new ones, contact us to discuss your recovery options.
