Credit Freezes, Credit Locks, and Fraud Alerts

Every few months it seems we hear about another major hack of consumer information from some huge company. None, however, had quite the chilling effect as the data breach at Equifax, one of the “big three” credit bureaus. The Better Business Bureau now warns consumers that is probably no longer a matter of if your data is available to scammers but more a matter of when they will use it against year. If you were a victim of the Equifax data breach (and most American adults were), Identity thieves now have everything they need to steal your identity and open new accounts in your name.

With this new fear, however, comes a lot of good information. For the first time, millions of consumers are adding fraud alerts to their credit reports, or considering a credit freeze or a credit lock. Our friends at the Federal Trade Commission recently explained how these three differ, and what each can do to protect your personally identifiable information.

Fraud Alert

What is it? A fraud alert requires companies to verify your identity before extending new credit. Usually that means calling you to check if you’re really trying to open a new account.
How does it work? The process is easy – you contact any one of the three nationwide credit reporting agencies (Equifax, Experian, TransUnion) and that one must notify the other two.
How long does it last? An initial fraud alerts last 90 days. After 90 days, you can renew your alert for an additional 90 days, as many times as you want. Military who deploy can get an active duty alert that lasts one year, renewable for the period of deployment. Identity theft victims (whose information has been misused, not just exposed in a breach) are entitled to an extended fraud alert, which lasts seven years.
How much does it cost? Fraud alerts are free.
Is this for me? With a fraud alert, you keep access to your credit and federal law protects you. But an initial fraud alert lasts only 90 days and then you’ll need to remind yourself to renew it every 90 days.

Credit Freeze

What is it? A credit freeze limits access to your credit file so no one, including you, can open new accounts until the freeze is lifted.
How does it work? To be fully protected, you must place a freeze with each of the three credit reporting agencies. Freezes can be placed by phone or online. You’ll get a PIN to use each time you freeze or unfreeze, which may take one to three business days.
How long does it last? A freeze lasts until you temporarily lift or permanently remove it (except in a few states where freezes expire after seven years).

How much does it cost? Fees are set by state law. Generally, it costs $5 to $10 each time you freeze or unfreeze your account with each credit reporting agency. You can get a free freeze if you are an identity theft victim, or in some states, if you’re over age 62. Equifax is offering free freezes until January 31, 2018.
Is this for me? Freezes are generally best for people who aren’t planning to take out new credit. Often, that includes older adults, people under guardianship, and children. People who want to avoid monthly fees also may prefer freezes over locks.

Credit Lock

What is it? Like a freeze, a credit lock limits access to your credit file so no one, including you, can open new accounts until you unlock your credit file.
How does it work? Like a freeze, to be fully protected, you must place locks with all three credit reporting agencies. With locks, however, there’s no PIN and usually no wait to lock or unlock your credit file (although the current Equifax lock can take 24 to 48 hours). You can lock and unlock on a computer or mobile device through an app – but not with a phone call.
How long does it last? Locks last only as long as you have an ongoing lock agreement with each of the credit reporting agencies. In some cases, that means paying monthly fees to maintain your lock service.

How much does it cost? Credit reporting agencies can set and change lock fees at any time. As of today, Equifax offers free locks as part of its free post-breach credit monitoring. Experian and TransUnion may charge monthly fees, often about $20.
Is this for me? Depending on your particular lock agreement, your fees and protections may change over time. So, if you sign up for a lock, it’s hard to be sure what your legal protections will be if something goes wrong later. Also, monthly lock fees can quickly exceed the cost of freezes, especially if the lock fees increase over time.

Additional information:

BBB offers advice in the wake of a data breach: go.bbb.org/databreach

FTC’s Credit freeze FAQs, Fraud alert or credit freeze – which is right for you?, and Free freezes from Equifax.

If your personal information is misused, visit IdentityTheft.gov to report identity theft and get a personal recovery plan.

How NC residents can protect themselves from the Equifax credit breach

What happened?
Equifax is a national credit bureau that collects information about the credit history of individual Americans. The company experienced the most significant security breach in American history. Hackers accessed the private information of an estimated 5 million North Carolinians. Information that can be used to commit ID theft and financial fraud including full names, dates of birth, Social Security numbers and in some cases driver license numbers, were stolen.

What is North Carolina Attorney General Josh Stein doing about it?
Attorney General Stein is taking action on behalf of North Carolina consumers affected by the breach. He is taking a lead role in an investigation into Equifax conducted with a bipartisan group of attorneys general from across the nation. In addition, Attorney General Stein has contacted Equifax to demand more information about how this breach occurred and what the company is doing to protect affected consumers. He has also written to the other two national credit bureaus (Experian and TransUnion) seeking information about their processes and how they plan to protect individual consumer’s private information going forward.

What do you need to do about it?
First, find out if you are impacted. If you are, we strongly suggest you consider freezing your credit with all of the credit reporting services. (You should also start checking your credit reports periodically – if you see a credit card or a charge account you don’t recognize, it could be a sign of ID theft or financial fraud.) Even if you aren’t impacted by this particular breach, we still recommend these steps.

“Chip” credit cards have reduced overall credit card fraud, but New Account fraud (where someone opens a new account using your name and information) has increased. Security freezes, also known as credit freezes, protect you against New Account fraud.

National news stories about the Equifax breach often say that you have to pay to freeze your credit. That is not true in our state – Security freezes are free for North Carolinians if you do them online. So it takes some of your time, but none of your money, to freeze access to your credit reports.

How to Get Free Security Freezes Online
To establish your security freezes, you will need to contact each of the three credit bureaus online:

Equifax	Experian	TransUnion
Online Form	Online Form	Online Form

(Note: the links above will take you to the websites for the three credit bureaus. These sites are separate from www.ncdoj.gov.)

Be prepared to provide detailed information about yourself, including:

Your Full Name

Your Address

Your Date of Birth

Your Social Security Number

(Note: The credit bureaus already have this information in their files. You will be providing it to verify your identity. You may also be asked questions about your financial history, previous addresses where you may have lived, etc. to help confirm your identity to the company.)

Keep Your PINs or Passwords
When you freeze your credit online, the company will assign you a PIN (Personal Information Number) or password. Make sure to print or write down your PIN, and keep it in a safe place. You will need it when you lift or remove your security freezes, and this online transaction may be the only time the company displays your PIN to you.

If You Lose Your PIN
If you lose your PIN or password, the company must give you a new one free of charge. If you lose it a second time, the company can charge up to $3 to give you a new one.

To receive a new PIN from Equifax or TransUnion, you must make your request in writing and provide proof of identification. (A copy of your driver’s license, passport, birth certificate, etc.) Mailing addresses for those credit bureaus can be found below. To receive a new PIN from Experian, visit this page and select “Retrieve My Personal Identification Number.”

How to get Security Freezes by Phone or Mail
You can also establish and manage a security freeze by mail or phone. These methods are always free for identity theft victims who have filed a police report, their spouses, and consumers over the age of 62. Other consumers can be charged up to $3 per credit bureau each time they establish a security freeze by mail or phone, although some credit bureaus are not currently charging consumers these fees. Before requesting a security freeze by mail or phone, check the credit bureau’s website to see if they charge a fee.

Security Freezes by Mail
Credit bureaus will usually comply with your written request for a security freeze within three business days after they receive it. To request a security freeze by mail, send a letter to each of the three credit bureaus at the addresses listed below.

Your letter should include:

Your full name including middle initial and any suffix (such as Jr.)

Your home addresses for the last five years

Your Social Security number and date of birth

Two proofs of residence (examples: a copy of your driver’s license, utility bill, insurance statement, bank statement)

Police or DMV report, if you’re a victim of identity theft

If the credit bureau charges a $3 fee for security freezes by mail, include payment by check, money order or major credit card. (Include the card name, account number, expiration date, and three or four digit identification number on the back of card.)

To save time, you can use our Security Freeze Request form letters for Equifax, Experian, and TransUnion. Enter your personal information on each letter, then print each letter and sign it. You can send your letters to the three credit bureaus by first-class mail, but for additional security you may want to send them by certified mail.

(Note: The credit bureaus already have your name and other personal information in their files. You will be providing it to verify your identity.)

Security Freezes by Phone
Most credit bureaus will usually comply with your request by phone for a security freeze within 24 hours. To place a freeze by phone, call each of the three credit bureaus. Be prepared to supply the information listed above including your driver’s license number and account numbers. If the credit bureau charges a fee for security freezes by phone, be prepared to provide payment information.

Contact Information to Request a Security Freeze by Mail or Phone

Equifax	Experian	TransUnion
PO Box 105788	PO Box 9554	PO Box 2000
Atlanta, GA 30348	Allen, TX 75013	Chester, PA 19016
1-800-685-1111	1-888-397-3742	1-888-909-8872

Keep Your PINs or Passwords
When you establish a security freeze with a credit bureau, the company will provide you with a PIN (Personal Information Number) or password. Make sure you keep this information in a safe place. You will need it when you lift or remove your security freeze.

(Note: If you get your freeze by phone, be ready to write down your new PIN. Near the end of your call the automated system may state your PIN quickly, and with little or no warning. Your PIN may not be repeated, so be prepared to write it down.)

Protected Consumer Security Freezes
Under North Carolina law you can now freeze the credit reports of children and incapacitated adults.

Finally, scammers are always on the lookout for situations they can exploit to steal your money and as expected they are piggybacking on the Equifax breach. Beware of scammers trying to capitalize on the Equifax breach.

There are also additional steps you can take to protect yourself. The Federal Trade Commission, the Consumer Financial Protection Bureau, and Consumer Reports are all offering useful information.

Debt collection scams still top consumer complaints

Debt collection scams remain the top complaint among consumers in 2016 at 28 percent of all gripes, and impostor scams have become the second most common category of consumer complaints.

This development comes from more than three million reports that the Federal Trade Commission gathered from all over the United States, now contained in the latest annual consumer sectional data book released by the FTC, according to an ethnic media telebriefing moderated by National Media Network Director of the New America Media Odette Keeley on the 2016 top ten scams in America.

The FTC wants all consumers to be aware of these scams so they may be forewarned and not fall victims to unscrupulous modus operandi that continue to abuse victims, particularly seniors, retirees and undocumented immigrants.
The FTC’s Consumer Sentinel Data Book has both national statistics and a state-by-state listing of the consumer protection issues reported to the FTC in 2016; it is also broken down by states and areas with the most reports per capita.

Impostor scams
Speaking on scams in the telebriefing, Bureau of Consumer Protection Assistant Director of the FTC Monica Vaca announced that impostor scams not just climbed to the second spot of the most number of scams, but also have become the most risky phone calls that consumers have received supposedly coming from government agencies.

“Calls from supposedly the Internal Revenue Service (IRS) that that you owe taxes that was never paid and you are going to be fined, you are going to prison or you are going to be arrested if you don’t pay and pay it quick. They ask for immediate payment maybe via wire transfer, or maybe by loading up a prepaid card and giving them the number for them to retrieve the money. In the end, the caller is not from IRS. The impostor is pretending to be calling from the IRS. The caller ID may even say IRS or Washington DC area code,” Vaca elaborated.

This past fall police in India shut down a massive telemarketing fraud ring that was operating outside Mumbai, India, leading to the arrest of 70 people arrested and detention of 600, after they reportedly defrauded 3,000 victims of tens of millions of dollars.

Identity theft
Identity theft complaints declined from 16 percent in 2015 to 13 percent in 2016, with 29 percent of 2016 consumers reporting that their data was used to commit tax fraud. There was a jump in consumers who reported that their stolen data was used for credit card fraud; this figure rose from nearly 16 percent in 2015 to more than 32 percent in 2016.

FTC also gathered that people reported a loss of some $744 million in 2016 to fraud, which was lower than the 2015 figure of $774 million lost, including money lost to all kinds of scams, not just impostors.

“Among the most important thing to take note is that 77 percent of consumers tell us that scammers are reaching them by phone, with most people or 58 percent losing money to fraud by paying through wire transfer,” Vaca pointed out.
In California, there were 334,631 identity thefts, fraud and other consumer complaints reported in 2016, with fraud and other complaints from California consumers numbering 279,887. The top three fraud categories are debt collection with 100,717 (36%), telephone and mobile services with 38,828 (14%) and impostor scams with 37,147 (13%).

Avoid wire transfer requests
This also prompted FTC to urge consumers to be wary of any caller asking for a wire transfer as the government will not ask a consumer to wire money, and it is illegal for telemarketers to ask you to pay by wire transfer, which is a big red flag.
Consumers who get a suspicious call should take their time and check it out by calling the government agency on a verified official phone line and not the phone number given by the suspicious caller.

Nevertheless, the FTC is encouraged that even if a lot of people have not lost any money, they still wanted the FTC to know about suspicious calls they received and these calls are helping law enforcement when they file these kinds of complaints.
“The FTC cannot investigate unless people call the FTC to say what they see. FTC uses the reports in the system to build cases,” explained Vaca. “Apart from the FTC, other law enforcers including the local police officers, state attorneys-general, and agencies like the FBI look at these reports to find cases to try to stop scammers.”

FTC victories
Through these combined efforts to fight fraud, the FTC has obtained judgments totaling more than $11.9 billion for consumers harmed by deceptive and unfair business practices.
The FTC anticipates frauds on immigration and health care services to spike as frauds tend to follow the headlines that are likely to transform into a fraud following the trends in the last years.

“Because of the stricter policies, scams in immigration services could see a rise since it is in the headlines. Other stories that are in the news where we have seen fraud in the past include the affordable care act or anything related to healthcare,” reminded Vaca.

FTC has also seen a rise in incidents of family-and-friends scams sometimes referred to as the grandparents scam where the call is about a close relative is in distress and you need to help them in the medical expense or with some sort of emergency expenses to get them out of a bad situation.
Consumer Sentinel Data Book
According to the FTC’s Consumer Sentinel Data Book, the scams that are on the top ten list of complaints for 2016 with the number of complaints and their percentages are:

Number of complaints Percentages

Debt Collection 859,090 28
Impostor Scams 406,578 13
Identity Theft 399,225 13
Telephone and Mobile Services 292,155 10
Banks and Lenders 143,987 5
Prizes, Sweepstakes and Lotteries 141,643 5
Shop-at-Home and Catalog Sales 109,831 4
Auto-Related Complaints 94,673 3
Credit Bureaus, Information Furnishers and Report Users 49,679 2
Television and Electronic Media 49,546 2

To learn more about the FTC report, go to www.consumer.ftc.gov/ and to file a consumer complaint online go to www.ftc.complaint/complaint or by calling 1-877-FTC-HELP (382-4357).

NC ATTORNEY GENERAL PROTECTS CONSUMERS FROM PREDATORY LOANS

North Carolina Attorney General Josh Stein recently announced that the Department of Justice has resolved a lawsuit against predatory auto title lenders in North Carolina. Liquidation, LLC made illegal loans to more than 700 North Carolinians under many names and charged interest rates of 161 percent to 571 percent, which far exceed legal limits in North Carolina. Loan amounts ranged from $800 to $7,000.

“Law-breaking lenders can wreak havoc on a person’s credit and cause financially-strapped people to get even further behind,” said AG Stein. “My office will not allow predatory lenders to take advantage of consumers in this state. Companies that attempt to charge loan shark interest rates will be shut down.”

The defendants solicited the loans online, after which they asked people to send the defendants their vehicle title to secure the loan. If people failed to make a payment, the defendants repossessed the borrower’s vehicle. The defendants were not licensed to make loans in North Carolina and often failed to disclose all of the loan terms until after the borrowers agreed to the loans.

The NC Department of Justice obtained a temporary restraining order and preliminary injunction order against Liquidation, LLC, also known as Auto Loans, LLC, Car Loan, LLC, and Sovereign Lending Solutions, LLC in 2016. After the defendants failed to appear in court, the NCDOJ traced their bank accounts to secure restitution funds and successfully froze $178,000.

The Court’s final judgment provides that:
· Loans made by the defendants are void and cancelled;
· Defendants are permanently prohibited from engaging in loan business in North Carolina;
· The $178,000 in frozen funds will be transferred to NCDOJ for consumer restitution and consumer protection purposes;
· Defendants liens are cancelled;
· Consumers who still have their vehicles can receive a new title without the lien;
· And a civil penalty of $3.5 million will be entered against the default defendants.

Two former employees also entered a consent judgment in which they agreed to permanent injunctions and substantial money judgments unless they collectively pay $15,000 to NCDOJ for consumer restitution.
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New FICO credit rules could cause credit scores to rise

New criteria will strip some negative information from credit reports.
For those affected, scores could rise by up to 20 points.
The new changes took effect July 1, 2017.

Do you know your credit score?

As of July 1, 2017, consumers may have noticed that their credit score has increased.

Improved standards for new and existing public records in the databases of the three major credit reporting companies were implemented on July 1. As part of this change, a majority of civil debts and tax liens will be excluded, which means some credit scores will edge higher.

The new standards follow a report by the Consumer Financial Protection Bureau that found problems with credit reporting companies and recommended changes to help consumers.

Altogether, about 7 percent of the population will have a a debt, such as a judgment or tax lien removed from their credit file, according to a report by Fair Isaac. The company calculates and sells FICO scores, one of the most commonly used scores by lenders.

Once that information is stripped out, their numbers could rise by up to 20 points, Fair Isaac said.

“Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts,” the Consumer Data Industry Association, which represents Equifax, Experian and TransUnion, said in a statement.

Still, credit reporting and scores play a key role in most Americans’ daily life. The process can determine the interest rate a consumer is going to pay for credit cards, car loans and mortgages — or whether they will get a loan at all.

In the near term, “it will lower the cost of borrowing,” said Andrei Andreev, an adjunct professor of finance at San Diego State University.

For now, by eliminating those large sources of potential for errors, “we think it will represent credit worthiness better,” he said. (Incorrect information on a credit report is the top issue reported by consumers, according to the CFPB.)

Contact Vujovic Law at www.vujoviclaw.com to see if bankruptcy or other debt options might help address debts that you may have other than judgments and tax liens. Often, a bankruptcy discharge can improve your debt to income ratio, which can make it easier for you to qualify for certain types of credit, depending upon lender guidelines.

Depending upon your individual case, filing for bankruptcy protection can help to finally put a negative credit history behind you and lead to an opportunity to pursue a fresh financial start, enabling you build your new credit history, rather than being overwhelmed by the consequences of credit mistakes of the past.

FTC Brings Suit Against North Carolina Debt Collector for “Phantom Debts”

On June 23, 2017, the Federal Trade Commission (FTC) announced that it has filed a complaint in the U.S. District Court for the Western District of North Carolina against a North Carolina debt collection company and its owner, alleging that the defendants took money from consumers for fake or “phantom” debts they did not owe.

According to the FTC, the defendants bought counterfeit payday loan debts from a lending company through a debt broker and began collecting on the debts. When consumers began complaining that they never took out the payday loans, or that they did not have an outstanding balance, the defendants reported the complaints to the broker, who then provided the defendants with a full refund for their purchase. Per the Complaint, the defendants kept collecting on the debts for more than seven months despite their knowledge that the debts were phony.

As a result of the alleged actions, defendants are charged with violating section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibiting unfair and deceptive acts or practices, and section 814 of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692l, prohibiting the use of false or deceptive means in collecting debt. The FTC seeks both immediate

NC ATTORNEY GENERAL SPEAKS OUT ON BEHALF OF STUDENT LOAN BORROWERS

Earlier this month, the U.S. Department of Education announced that it will delay important new rules that protect student loan borrowers from predatory and deceptive practices.

North Carolina Attorney General Josh Stein released the following statement in response:

“Education is one of the best reasons I can think of to borrow money. But unfortunately, there are some in our world who take advantage of those who are vulnerable – and that includes student borrowers. As North Carolina’s Attorney General, protecting people, including students is my top priority.

“That is why I find this news deeply troubling. The rules, which were to take effect on July 1, would protect student borrowers – delaying them is misguided and irresponsible.

“These delayed rules were hard-fought and sound consumer protection measures born out of the problems that other attorneys general and I have seen plague student borrowers time and time again.”

The delayed protections include:

Prohibiting schools from forcing students to pursue complaints in arbitration rather than in court;
Prohibiting schools from requiring students to waive participation in class action lawsuits; and
Providing automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general.

NCLC Calls on Congress to Restore Federal Protections Against Abusive Debt Collection

Contact us at Vujovic Law to see how we can help stop the abusive creditor tactics described in the recent U.S. Supreme Court decision described below:

In a decision authored by Justice Neil Gorsuch, the Supreme Court ruled in Henson v. Santander Consumer USA, Inc. that the Fair Debt Collection Practices Act (FDCPA)—the key federal law that prohibits late night debt collection calls, threats, harassment of neighbors, and contacts after the consumer tells the debt collector to stop—did not apply to Santander. Because Santander was collecting debts it bought from a different lender, the Supreme Court held that it did not qualify under one of the FDCPA’s definitions of debt collector, which covers companies that regularly collect debts owed or due another.

“The Supreme Court did not address a separate definition of debt collector that looks at whether the company’s principal purpose is debt collection,” clarified National Consumer Law Center (NCLC) staff attorney April Kuehnhoff. “Debt buyers are still covered under the FDCPA if they meet the principal purpose test,” she added.

“Today’s decision is bound to lead to consumer confusion since consumers won’t know whether or not the FDCPA protections apply to the debt buyer contacting them,” said NCLC attorney Margot Saunders. “The FDCPA is a 40-year-old law written before the rise of the modern debt buying industry. To ensure that consumers are fully protected from abusive debt collection activities, the onus is now clearly on Congress to amend the FDCPA to clarify that all debt buyers are debt collectors covered by the statute. This will not only protect consumers but also prevent a race to the bottom as debt buyers move to restructure their companies in an attempt to avoid having to comply with federal consumer protection statutes.”

FREEZE KIDS’ CREDIT TO GUARD AGAINST ID THEFT

FREEZE KIDS’ CREDIT TO GUARD AGAINST ID THEFT: ADVISES NC ATTORNEY GENERAL TO PARENTS

North Carolina Parents are now able to use security freezes to protect children’s credit

NC Parents now have a new tool to help protect their children’s credit from fraud according to North Carolina Attorney General Roy Cooper.

North Carolina House Bill 607 took effect January 1, 2016 and gives parents and guardians the ability to freeze the credit reports of all children under age 16.

“A security freeze locks down your credit report to keep identity thieves from opening accounts and racking up debts in your name,” Cooper said. “ID theft can strike victims of any age and now parents can protect their kids’ credit from the very beginning.”

In the past, the major credit bureaus have said that they could not freeze credit reports for minors who had not yet established any credit. The new law requires credit bureaus to create and freeze a child’s credit report upon request of a parent or guardian.

A security freeze or credit freeze is one of the best ways to keep criminals from being able to take out a loan or open a credit card in someone else’s name. A freeze blocks access to credit unless you have given your permission, meaning that a criminal who has stolen your child’s identity will not be able to use it to open new accounts.

How to get a security freeze for your children

Request a security freeze for your child under age 16 by mail, by telephone, or online. Visit ncdoj.gov/creditfreeze for contact information.
To lift a freeze permanently or temporarily, use the PIN or password established when setting up the freeze.
It may cost up to $5 per credit bureau to place or lift a freeze on a child’s credit.
A freeze is free if the child already has a credit report or has been a victim of identity theft.

North Carolina adults can freeze their credit reports for free online with each of the three major credit bureaus, with information available at ncdoj.gov. Once your credit is frozen, you can thaw it when needed to take out credit yourself.

For more tips on protecting your identity and cleaning up the damage ID theft can cause, visit ncdoj.gov or call 1-877-5-NO-SCAM toll-free within North Carolina.

Editorial: Proposed NC wage garnishment bill would damage families

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.