About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

77 Com. L.J. 360 (1972)
Effects of the Federal Minimum Exemption from Wage Garnishment on Nonbusiness Bankruptcy Rates

handle is hein.journals/clla77 and id is 358 raw text is: Effects of the Federal Minimum Exemption from Wage Garnishment on Nonbusiness Bankruptcy Rates Philip Shuchman* Gerald R. Jantscher** of Washington, D.C. T HE CONSUMER CREDIT Protection Act of 1968 estab- lished a new federal minimum wage exemption from garnishment of seventy-five per cent of the debtor's dis- posable earnings, or a weekly amount equal to thirty times the minimum hourly wage ($48), whichever is greater. Legislative history was explicit on the problem of wage garnishment: that the Congress accepted a causal con- nection between harsh wage garnishment laws and high levels of personal bankruptcies . . . The Congressional in- tent was that the limitations on the garnishment of wages . . . , will relieve countless honest debtors driven by economic desperation from plunging into bankruptcy. ..- That intent appears to have been generally realized as this limited impact analysis shows. The wage garnishment provision took effect on July 1, 1970. In some states the wage exemption already exceed- ed seventy-five per cent, so in these the new law changed nothing. In other states the new law effectively increased the local wage exemption. This law gives us an opportunity to test directly the inference that has been drawn from analyses of wage exemptions and nonbusiness bankruptcy rates: that high bankruptcy rates were generally associated with low wage exemptions.2 If the relation is meaningful a change in the size of a state's wage exemption should be followed by a change in its nonbusiness bankruptcy rate. Our hypothesis is that in states whose wage exemptions were not affected by the federal law, bankruptcy rates should have increased more, or decreased less, during FT 1970 and 1971 than they did in states whose wage exemp- tions were raised by the new law.3 Since the law became effective at the end of FY 1970 and the beginning of FY 1971, this hypothesis can be tested with the bankruptcy records for those two fiscal years. This is done by compar- ing the changes in the bankruptcy rate 'between FY 1970 and FY 1971 in the two groups of states. (Throughout this report, change means relative change-the ratio of the absolute change in the bankruptcy rate to the level of the Bankruptcy rate in the earlier year.) There is no reason why a two-year interval centered on the date when the fed- eral wage garnishment law took effect should not be suffi- cient. The time periods on either side of July 1, 1970 need merely be long enough to reduce -to an acceptable level the risk that random variations in the number of bank- ruptcy filings might distort the data. 1n There are methodological problems in the analysis of the relation between wage garnishment exemptions and bankruptcy rates. Many state laws express their wage ex- emptions not as a simple fraction of earnings, but as a stated number of dollars per week or month. In order to determine whether the federal law had effectively raised a state's wage exemption on July 1, 1970, we had to express the exemption before that date as a fraction of a man's earnings. We did this by following the same conventions that had been used in the Brookings study.4 The staff re- searchers carefully examined the wage garnishment stat- utes of every state to make sure that we had correct information before beginning the analysis. m Forty-nine states (all except Ohio) and the District of Columbia were divided into two groups, depending on whether their wage exemptions from garnishment were increased or not by federal law on July 1, 1970. The groups were of almost equal size, twenty-five states and the District in the first group, and twenty-four states in *Deputy Director, Commission on Bankruptcy Laws of the United States **Research Associate, Economic Studies Program, The Brook- ings Institution. 1. H.R. Report No. 1040 to accompany H.R. 11601, Con- sumer Credit Protection Act 20-21 (90th Cong., 1st Sess., 1967). 2. See, e.g., Brunn, Wage Garnishment in California . 53 Calif.L.Rev. 1214 (1965); Wage Earner Plans Under the Bankruptcy Act, Hearings before Subcommittee No. 4, House Committee on the Judiciary on H.R. 1057 and H.R. 5771 107-108 (90th Cong., 1st Session., 1967); D. Stanley & M. Girth, Bankruptcy: Problem, Process, Reform 28-31, Appendix B, § 4 at 236 (1971). 3. Strictly speaking, it is the opposite hypothesis that is tested. The null hypothesis is that the bankruptcy rates in the two groups of states will have about the same changes. If the null hypothesis fails the test, our hypothesis is ac- cepted. 4. D. Stanley & M. Girth, Bankruptcy: Problem, Process, Re- form 238-241 (1971). COMMERCIAL LAW JOURNAL

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most