As the calendar gets set to turn to a new year, a number of new laws are scheduled to take effect. Here is a summary of what collection operations need to be prepared for starting as soon as January 1.
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New Jersey
A new law, championed by Gov. Phil Murphy, goes into effect on January 1 and implements several major changes to how medical debt can be collected and reported.
- Under the new regulations, medical creditors and debt collectors are barred from reporting medical debts to consumer reporting agencies for any healthcare services provided after the law takes effect.
- The legislation also prohibits the reporting of paid medical debts or those under $500 to credit bureaus.
- The law establishes strict parameters around collection practices, including capping interest rates on medical debt at 3% annually.
- It provides substantial protection for lower-income patients by prohibiting wage garnishment for individuals earning less than 600% of the federal poverty level.
- A 120-day waiting period after the initial billing before any collection actions can begin is also being mandated.
- Additionally, collectors cannot pursue collection activities against patients who are actively complying with reasonable payment plans.
Michigan
Legislation, now awaiting the signature of Gov. Gretchen Whitmer, introduces substantial changes to how creditors can collect debts and what assets debtors can protect.
- Under House Bill 4900, homeowners will be able to exempt up to $120,000 in home equity from civil court judgments, a significant increase from the current $46,125 limit. For seniors and disabled individuals, the protection extends even further, allowing exemptions up to $200,000, compared to the previous $69,200 cap.
- The legislation also reduces creditors’ ability to garnish wages, lowering the maximum garnishment from 25% to 10% of a debtor’s net paycheck. Additionally, the bill establishes new processes for determining priority in cases of multiple garnishments and expands protections against employer retaliation for garnished employees.
Supporters, including Representative Kara Hope, argue these updates are necessary to prevent financial devastation while allowing debtors to maintain basic living standards and continue paying their daily expenses. However, the legislation has faced criticism from collections attorneys who argue it could impair the ability of civil judgment holders, including some crime victims, to collect compensation.
California
A new law, scheduled to go into effect on January 1, bans the reporting of medical debt on consumers’ credit reports. The debt must be owed to a medical provider or collection agency to not be included on a credit report; debts paid using medical credit cards or other forms of consumer credit are still eligible to be reported.
Virginia
Proposed legislation in Virginia seeks to provide financial breathing room for consumers by automatically exempting the last $5,000 in a bank account from garnishment. The bill, introduced by Delegate Phil Hernandez, aims to help individuals maintain housing and essential expenses while navigating debt repayment.
