Collectors Seize Wages of Millions of Americans Burdened by Debt

http://www.alternet.org/economy/collectors-seize-wages-millions-americans-burdened-debt

At the request of ProPublica,  ADP, the nation’s largest payroll services provider, undertook a study of 2013 payroll records for 13 million employees.  ADP’s report, released today, shows that  more than one in 10 employees in the prime working ages of 35 to 44 had their wages garnished  in 2013…Roughly half of these debtors, unsurprisingly, owed child support. But a sizeable number had their earnings docked for consumer debts, such as credit cards, medical bills and student loans…Extended to the entire population of U.S. employees, ADP’s findings indicate that 4 million workers — about  3 percent of all employees — had wages taken for a consumer debt in 2013…ADP’s study, the first large-scale look at how many employees are having their wages garnished and why, reveals what has been a hidden burden for working-class families. Wage seizures were most common among middle-aged, blue-collar workers and lower-income employees. Nearly 5 percent of those earning between $25,000 and $40,000 per year had a portion of their wages diverted to pay down consumer debts in 2013, ADP found…Perhaps due to the struggling economy in the region,  the rate was highest in the Midwest. There, over 6 percent of employees earning between $25,000 and $40,000 — one in 16 — had wages seized over consumer debt. Employees in the Northeast had the lowest rate. The statistics were not broken down by race…The garnishment process for most debts begins in local courts. A company can file suit as soon as a few months after a debtor falls behind. A ProPublica review of court records in eight states shows the bulk of lawsuits are filed by just a few types of creditors and companies. Besides major lenders like Capital One, medical debt is a major source of such suits.  High-cost lenders who deal in payday and installment loans also file suits by the thousands. And finally, an outsized portion comes from debt buyers — companies that purchase mostly unpaid credit card bills…When these creditors and collectors go to court, they are almost always represented by an attorney. Defendants — usually in tough financial straits or unfamiliar with the court system — almost never are. In Clay County, Missouri, where Capital One brought its suit against Evans in 2011, only 7 percent of defendants in debt collection cases have their own attorneys, according to ProPublica’s review of state court data. Often the debtors don’t show up to court at all: The most common outcome of a debt collection lawsuit in Missouri (and any other state) is a judgment by default…ADP’s analysis also found that the rate of garnishment for child support was most common (3.4 percent), but closely followed by consumer debt, including student loans. The next most common reasons for garnishments were tax levies and payments for bankruptcy plans. (Disclosure: ProPublica retains ADP to provide it with professional employer organization services.)…Wage seizures for student loan debts are governed by different laws than other consumer debts. Collectors can obtain a garnishment after an administrative procedure set by federal rules. Borrowers must also be more than nine months behind before a collector can seek one. Finally, such seizures are capped at 15 percent of disposable income…Department of Education data shows that approximately $1 billion has been collected each year over the past several years through these garnishments. The amount is up by about 40 percent since 2006, even after the figures are adjusted for inflation. ADP’s analysis did not break out student loans from other types of consumer debt.

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