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Save families teetering on cliff of debt

The Great Recession devastated the financial health of families across California, especially the working poor families of Fresno and the surrounding San Joaquin Valley. Millions of Californians are still struggling with unemployment or underemployment, living paycheck to paycheck, barely able to make ends meet.

Last week’s budget deal in Sacramento takes steps to change that. In particular, the budget creates the state’s first earned income tax credit for the working poor, a sorely needed step. But more needs to be done, not just to get money into the wallets of low-income families but also to keep them from losing their money in the first place.

One set of bills making its way through the Legislature — the Economic Equity and Financial Stability Initiative of 2015 — would do just that. The trio of bills would update decades-old laws to meet the needs of working Californians, providing a hand up to families who are looking to rejoin the financial mainstream.

These bills would make bankruptcy laws operate more fairly, reduce the percentage of wages that creditors can take from a worker’s paycheck and reform present-day laws that allow collectors to strong-arm those in debt. Simply put, families teetering on a financial cliff will no longer be pushed over the edge.

Senate Bill 501 provides protections for California’s 1.5 million workers whose wages are being garnished to pay off debt. As it stands, these workers are not allowed to keep any wages above the minimum wages. So if they are making, say, $12 an hour, they automatically lose $3 an hour.

For low-income families precariously juggling expenses paycheck to paycheck, a sudden loss of one-quarter of their monthly income can put essentials like food, rent and utilities out of reach. The new law would ease that burden. In most cases, the garnishment rate would be cut from 25% of their wages to 15%.

Senate Bill 308 gives more Californians filing bankruptcy an opportunity to keep their homes and their cars so that they have a place to live and a way to get to work as they try to recover their financial footing. The proposed law raises the amount of equity that a consumer can exclude from a bankruptcy judgment, recognizing that a home and a vehicle are necessities of life — and recovery — for working Californians.

Finally, Senate Bill 641 fixes the problem of workers having their wages garnished or their bank accounts emptied because of lawsuits they’ve never heard of or debts that aren’t actually theirs. Certain debt collectors known as “debt buyers” have been exploiting a state law that gives consumers only two years to challenge a default judgment against them. Without ever having a day in court, their wages are garnished. This legislation would give consumers a chance to fight the debt buyer’s claim even if more than two years have passed since the default judgment.

When the bills passed the state Senate last month, one senator noted, “A lot of people talk the talk on income inequality, but today the state Senate walked the walk.” The Assembly now has the chance to do the same.

Wage garnishment can all too often lead to unmanageable debt, unmanageable debt to bankruptcy and bankruptcy to homelessness. It is time to break this cycle, and to give working families something they have not had in a long time: Hope.

Sharon Djemal is the director of the Consumer Law Practice at the East Bay Community Law Center. Darby Lin O’Donnell is a law student intern at the center. Sharon Randall is an Oakland resident and client of the center who helped inspire the initiative.

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