Regulating the Risk of Debt: Exemption Laws and Economic Insecurity across U.S. States

• In Event: 1109 - Social Policy

Abstract

Families increasingly face risk in the United States: the proportion of households experiencing a substantial drop in available income has ranged from 14.3% in 1986, to 20.5% in 2009 during the Recession, to 17.8% in 2012. In the absence of a social safety net, households must turn to unsecured loans like credit cards when confronted with a sudden loss in income. However, credit itself is a risk, and debtors unable to make payments find that debt collectors can seize their wages and property to repay delinquent loans. All US states protect some amount of property or wages for their citizens through exemption laws. Although protections have generally increased over time, states vary tremendously in how much of a debtor’s assets they protect. This paper examines the relationship between the protectiveness of a state’s exemption laws and economic insecurity from 1986-2012, using a time-series cross-sectional design with fixed effects. My results show that higher protections for debtors are associated with lower economic insecurity during recessions, when a wider range of the population experiences insecurity.

Author

• Elizabeth Martin, Ohio State University