Editorial writer William Brewer is a bankruptcy lawyer who practices in Raleigh, NC and is a past President of the National Association of Consumer Bankruptcy Attorneys (NACBA).

The nation is finally and slowly emerging from the Great Recession – a period during which delinquency rates on consumer debts were five times higher than the rates during the previous five years. Simply put, many North Carolinians could not pay their debts because of lost jobs and fast-declining home values.

The result, not surprisingly, has been an explosion in lawsuits, especially by large national debt buying outfits that specialize in purchasing bad debts from the original creditors for pennies on the dollar and then trying to collect whatever they can.

The balance between the rights of these giant creditors to seize property from debtors and the rights of the debtors to keep property necessary to provide for their families is a delicate one. Those who have the ability to pay debts ought to do so. But, when confronted with the choice of paying a consumer debt like a credit card bill or providing for a family’s needs, family should come first. Unfortunately, the ability to put families first has been placed in jeopardy by the introduction of a wage garnishment proposal in the North Carolina Senate (Senate Bill 632) by Sen. Andrew Brock.

To understand the Senator Brock’s proposal, a little history lesson is helpful.

North Carolina law has long placed reasonable limitations on the right of a creditor who has successfully sued a debtor to seize his or her wages. Since 1870, state law has prohibited the seizure of such wages from the previous 60 days when it can be shown that the earnings “are necessary for the use for a family supported, wholly or in part, by his labor.”

Our courts have repeatedly upheld and applied this law to allow a debtor to protect 60 days of wages from his creditors, whether in the form of unpaid wages or wages received and in the bank, but only so long as they are necessary for the support of the debtor’s family. In other words, for almost 150 years, North Carolina has balanced the competing interests in this area by allowing a debtor to provide for his or her family.

Unfortunately, the new Senate proposal would destroy this balance by allowing a creditor to garnish 25% of a wage earner’s “disposable income,” which it defines as the debtor’s gross wages, minus taxes.

Let’s think about how this would play out in the real world. Consider a single mother with two children who earns $42,000 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 will allow a creditor to garnish an additional $700 from her pay, leaving her with only $1,690. The consequences will be devastating to her family.

As practical matter, the only refuge for such an unfortunate wage earner will 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 40^th among the states with a rate of 1.82.

By contrast, the rates in our sister states in the southeast that allow wage garnishment along the lines of Senator Brock’s proposal are the highest in the nation. Tennessee is first with a rate that’s 350% of North Carolina’s. Georgia and Alabama are second and third with three times the North Carolina rate. Virginia has a rate 70% higher than North Carolina. South Carolina, which has no wage garnishment, has a filing rate 13% lower.

The conclusion from all this is inescapable: if the General Assembly and Gov. McCrory enact a law that dramatically expands wage garnishment in our state, bankruptcy filings will soar by 200-300%.

As a bankruptcy lawyer who has represented debtors for over 30 years, these statistics are not surprising to me. 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 like me, it is bad public policy and I strongly urge state lawmakers to reject it.

Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers

WHITE HOUSE PRESS RELEASE

Office of the Press Secretary

FACT SHEET: A Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers

Higher education continues to be the single most important investment students can make in their own futures. Five years ago this month, President Obama signed student loan reform into law, redirecting tens of billions of dollars in bank subsidies into student aid. His historic investments in college affordability include increasing the maximum Pell Grant by $1,000, creating the American Opportunity Tax Credit worth up to $10,000 over four years of college, and letting borrowers cap their student loan payments at 10 percent of income. He has also promoted innovation and competition to help colleges reduce costs and improve quality and completion, including a First in the World fund. While these investments have helped millions of students afford college, student loans continue to grow.

That is why, today, President Obama will underscore his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights. As part of this vision, the President will sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions.

A Student Aid Bill of Rights

I. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.

II. Every student should be able to access the resources needed to pay for college.

III. Every borrower has the right to an affordable repayment plan.

IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Today’s Actions to Promote Affordable Loan Payments

Americans are increasingly reliant on student loans to help pay for college.
Today, more than 70 percent of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and non-profit colleges. Today’s actions will help borrowers responsibly manage their debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program:

. Create a Responsive Student Feedback System:The Secretary of Education will create a new web site by July 1, 2016, to give students and borrowers a simple and straightforward way to file complaints and provide feedback about federal student loan lenders, servicers, collections agencies, and institutions of higher education. Students and borrowers will be able to ensure that their complaints will be directed to the right party for timely resolution, and the Department of Education will be able to more quickly respond to issues and strengthen its efforts to protect the integrity of the student financial aid programs. In addition, the President will direct the Department of Education to study how other complaints about colleges and universities, such as poor educational quality or misleading claims, should be collected and resolved and to strengthen the process for referring possible violations of laws and regulations to other enforcement agencies.
These actions will help ensure more borrowers get fair treatment throughout the federal student loan process.

. Help Borrowers Afford Their Monthly Payments:The President will announce a series of steps to improve customer services and help borrowers repay their direct student loans, which are made with federal capital and administered by the Department of Education through performance-based contracts.
High-quality, borrower-focused servicing helps more borrowers successfully repay their federal student loans. Building on the stronger performance incentives put in place last year, the Department will now raise the bar by:

o Requiring enhanced disclosures and stronger consumer protections throughout the repayment process, including when federal student loans are transferred from one servicer to another, when borrowers fall behind in their payments, and when borrowers begin but do not complete applications to change repayment plans. These steps will better protect borrowers from falling behind in their payments and ensure consistency across loan servicers.

o Ensuring that its contractors apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.

o Establishing a centralized point of access for all federal student loan borrowers in repayment to access account and payment processing information for all Federal student loan servicing contractors.

o Ensuring fair treatment for struggling and distressed borrowers by raising standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing; clarifying the rights of Federal student loan borrowers in bankruptcy; working with the Department of Treasury to simplify the process to verify income and keep borrowers enrolled in income-driven repayment plans; and working with the Social Security Administration to ensure that disability insurance recipients who can discharge their student loans are not instead seeing their disability payments garnished to repay defaulted loans.

. Prioritize Further Steps to Meet the Needs of Student Borrowers:The federal government has a responsibility to ensure that students who borrow federal loans have every opportunity to repay those loans through fair, affordable monthly payments. To continue to improve the information and customer service offered those borrowers, the President will direct the Department of Education to:

o Work with the White House Office of Science and Technology Policy to find the most innovative and effective ways to communicate with borrowers, leverage the latest research identifying key factors that influence borrower repayment and keep actual borrower behavior in mind, so they stay in repayment and avoid default.

o Work with the Office of Management and Budget to regularly monitor key trends in the student loan portfolio, improving loan servicing and budgeting and considering possible policy changes.

o Invite expertise from across the government to review best practices for performance-based contracting that could further improve outcomes for borrowers.

In addition, new requirements may be appropriate for private and federally guaranteed student loans so that all of the more than 40 million Americans with student loans have additional basic rights and protections. The President is directing his Cabinet and White House advisers, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans. The agencies will develop recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.

Making Progress on A Student Aid Bill of Rights

Together, we can continue our work toward ensuring that all Americans have meaningful opportunities for a high-quality, affordable postsecondary education without the threat of unmanageable debt. The President’s vision laid out in the Student Aid Bill of Rights incorporates the progress we’ve made, his existing proposals, and the new actions announced today.

I. Every student should have access to a quality, affordable education at a college seeking new ways to lower costs and increase learning.

. America’s College Promise: In January of 2015, the President released a bold new proposal to make two years of community college free for responsible students, letting students earn the first half of a bachelor’s degree and earn skills needed in the workforce at no cost, benefiting nearly
9 million students, and ensuring states and community colleges do their part to help students succeed.

. First in the World Grants: In September, the Department of Education awarded $75 million to colleges and universities across the country under the new First in the World (FITW) grant program to encourage colleges to adopt cutting-edge innovations and proven strategies that expand college opportunity, improve student learning, and reduce costs. This year, the President has proposed increasing FITW to $200 million.

. Call to Action on College Opportunity: Last December, the President, Vice President, and First Lady joined college presidents, K-12 superintendents, non-profit, foundations, and businesses to announce over 600 new commitments to help more students prepare for and graduate from college.

. College Ratings: The Department of Education continues its work to develop a college ratings system by the 2015-2016 school year that will help students and families compare the value offered by colleges and encourage colleges to improve by highlighting institutions that successfully educate students from all backgrounds; maintain affordability; and help students gain a degree or certificate of value.

II. Every student should be able to access the resources needed to pay for college.

. Dramatically Increasing Investment in Pell Grants: The President raised the maximum Pell Grant award to $5,730 for the 2014-15 award year – a nearly $1,000 increase since 2008, helping more than 8 million Americans a year afford college. This year, the President has proposed new investments to ensure the maximum Pell grant keeps up with the cost of inflation.

. Simplifying the Process to Apply for Federal Student Aid: The Department of Education has helped students and their families fill out the Free Application for Federal Student Aid (FAFSA) in a fraction of the time it used to take-20 minutes from over an hour-through a redesigned tool that asks less questions and helps filers get their income data directly from the Internal Revenue Service. This year, the President has proposed eliminating more questions from the FAFSA.

. Simplifying and Improving Education Tax Benefits:The President created the American Opportunity Tax Credit (AOTC) to provide families with up to $10,000 over four years of college. This year, the President has proposed simplifying and improving education tax benefits for more than 25 million families, including making AOTC available for up to five years and eliminating taxes on student loan debt forgiveness under income-driven repayment plans.

III. Every borrower has the right to an affordable repayment plan.

. Pay-As-You-Earn Loans: Under the President’s Pay As You Earn plan, recent student borrowers can cap federal loan payments at 10 percent of their income. Last June, the President directed the Department of Education to amend its regulations to make the plan available to all direct loan borrowers, helping nearly 5 million additional borrowers by December 2015.
This year, the President has proposed reforms to the program that will streamline and better target all income-driven repayment plans to safeguard the program for the future.

IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

. Transitioning to a Student-Centered Direct Loan Program: In 2010, the Administration took action to make federal student loans more reliable and efficient by eliminating subsidies to banks and successfully transitioning all new originations to the Direct Loan program. New performance-based contracts that were created by the Department incented servicers to find new and innovative ways to best serve students and taxpayers and this June, the contracts were strengthened to improve the way servicers are compensated to help borrowers repay their loans on time and ensure high-quality servicing.

. Simplifying Income-Driven Repayment Plans and Improving Borrower Outreach:
In 2012, in partnership with the Internal Revenue Service (IRS) the Department of Education made it easier for borrowers to enroll in an income-driven repayment plan by creating an online application that lets borrowers get their required income information directly from IRS. Along with outreach efforts spanning targeted email campaigns, social media, and partnerships with outside organizations, more than 2.4 million borrowers are able to manage their debt through and income-driven repayment plan.

. Building Tools and Resources to Support Federal Student Loan Borrowers:
Since 2012, the Department of Education has developed a suite of tools and resources to help federal student loan borrowers, including a financial aid counseling tool that helps borrowers make good education financing decisions, understand their options for paying back their loans, and accurately compare and select repayment options customized to their individual circumstances.

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