(Source: MIRS.news, Published 10/23/2024) Someone with substantial credit card or non-student loan debt would have the first 35 hours of their work week automatically shielded from court-ordered garnishments, under legislation that moved out of the Senate Finance, Insurance and Consumer Protection Committee Wednesday. 

This afternoon, by a 5-3 party-line vote, the committee adopted SB 408 with an S-2 substitute, originating from a proposal discussed in May to prevent creditors in Michigan from garnishing up to 25 percent of someone's weekly net income following court instruction. 

Under the version of SB 408 that was sent to the Senate floor, a person earning Michigan's minimum wage will have the initial 35 hours of their work week non-garnishable after a creditor sues them for unpaid debt. 

Right now, the garnishments go toward paying off the person's debt, and the transfer of the person's money can be overseen by a bank, an employer or the state itself. 

Also, up to $800 of what someone has sitting in a bank account will be non-garnishable. If that person is receiving an Earned Income Tax Credit (EITC) from the state, which is a tax credit for working households residing in poverty conditions, likely unable to maintain an emergency savings fund, that credit will be shielded from garnishments as well. 

"Currently, Michigan protects $0 in someone's bank account, so once that collection order comes, people's funds can be reduced to zero. That causes people to do all sorts of irresponsible things with their money," said Sen. Jeff IRWIN (D-Ann Arbor), the sponsor of SB 408. "It puts them in a position where they can't . . . put food on their table, can't get gas in their car to get to work, and that doesn't help anybody's bills get paid." 

As for the EITC measure of SB 408, Irwin said the legislation protects the public's investment in people "who are working hard, but they're not earning enough." 

"The Legislature decided that . . . folks who are working hard but not earning enough need a little boost. We don't want that to be taken off the table immediately through the debt collection process for these very poor folks," he said. 

An opponent of SB 408 is Stuart Best, president of the Michigan Creditors Bar Association (MCBA) board. 

"What Senator Irwin and the committee (are) trying to do is to protect what they call the poor debtor. Well, really what they're doing, if this bill is too extreme and the exemptions are too high, is keeping that debtor in a downward spiral," Best said. "It does not require or assist them in paying their bills, but puts them in a protected status to where they're not going to ever come out of that." 

He added that the tighter the collection of certain debts becomes, the credit opportunities available to low-income Michiganders will additionally tighten. 

As for today's process, up to 25 percent of a Michigander's weekly net income can be garnished to pay off debt following a lawsuit, or up to $217.50 weekly if their disposable earnings are worth more than 30 times the federal minimum wage ($7.25 per hour).

According to a report by the Michigan Justice For All (JFA) Commission, through collaboration with the January Advisors data science consulting firm and The Pew Charitable Trusts nonprofit, debt collection cases in 2019 followed traffic cases in terms of district court prevalence. 

The report found that judgment creditors seek garnishments in 78 percent of cases once a judgment is entered, and the filing rate against Michiganders living in majority Black communities is two to three times higher than case filings against majority non-Hispanic White community residents. 

However, Best said today's system permits debtors to file with the court and explain why they can't afford a garnishment, with courts having power to adjust garnishments accordingly based upon their needs. 

"If you artificially do that, the debt is never going to get paid off. At $100 a month (for) a payment on a $12,000 debt, at 12 percent interest, it's never going to get paid (off)," he said. "Those folks that don't need the protection of this bill are going to fall under the protection of this bill, and that's going to detriment everyone." 

Another bill that moved by party-line vote today was an S-2 version of SB 409 by Sen. Mary Cavanagh (D-Redford Twp.), the Senate's chair of Finance, Insurance and Consumer protection. The legislation deals with Chapter 7 bankruptcy filings, when someone is unable to manage large-scale debt through monthly payments and needs to have their assets turned into cash. 

For seniors 65 years-old and over, SB 409 would allow them to keep their homes from being sold for bankruptcy payments if their homestead value is up to $200,000, instead of today's $45,000. 

Kurt O'Keefe, the St. Clair Shores-based chair of the National Association of Consumer Bankruptcy Attorneys, said SB 409's reforms will benefit "a very small part of the population." 

"My clients don't have any money. They're not in a big organized group. They're not represented here in the beltway of Lansing," O'Keefe said. "I think I have two or three people now that they're in that situation where, if they file, the bankruptcy trustee has to sell the house. The trustees are bound in duty to collect assets for the benefit of creditors." 

He said SB 409 will most benefit widows in Michigan, who are living off Social Security income and have been left with $50,000 in credit card debt from their deceased spouse. 

"The kids and grandkids aren't going to inherit (the home) because Visa and MasterCard and Discover, which are not Michigan corporations, sue, put a lien on the house from money the husband spent, maybe that she didn't know about," O'Keefe said.