Arizona Proposition 209, passed in November 2022, has introduced sweeping changes to the state’s rules regarding wage garnishments and debt collection practices. As a leading Arizona law firm representing both creditors and debtors, we are here to help interpret these changes and provide our clients with the necessary knowledge to navigate the new legal landscape. Here are the key details to understand about Arizona Prop 209 and the implications on wage garnishments and debt collection practices.
What is Arizona Proposition 209?
Arizona Proposition 209, in effect as of December 5, 2022 redefined the state’s guidelines concerning how creditors can collect debts from debtors. This legislation was designed to protect consumers from abusive, deceptive, or unfair debt collection practices while maintaining the integrity of lawful commerce.
The main changes introduced by Prop 209 include a cap on the percentage of wages that can be garnished, a lower interest rate on medical debts, a significant and higher homestead exemption, and the requirement for creditors to provide clear, comprehensive information about the debt and the debtor’s rights. Any judgment entered after December 5, 2022 is subject to the new law. Any judgment entered before enactment of Proposition 209 is subject to the “old” laws.
Impact on Wage Garnishments – Medical Debt
Before Proposition 209, creditors could garnish up to 25% of a debtor’s non-exempt disposable earnings. Now, the law has reduced this maximum limit to 10% of an individual’s disposable income or 60 times the highest applicable minimum wage (whichever is less). This reduction aims to ease the burden on debtors, allowing them to maintain a higher standard of living while still repaying their debts.
Moreover, the law now prohibits the garnishment of wages entirely for those who earn 40 times the federal minimum wage or less per week, making a significant impact on low-income earners.
As for medical debt (i.e. receipt of health care services, medical products or services), the new law reduces the maximum interest rate that can be charged from 10% to 3%.
Increased Debtor Protections – What This Means for Creditors and Debtors
For creditors, these changes mean adopting new, stricter practices that align with these new Arizona laws resulting from Proposition 209. Creditors and counsel must continue to provide debtors with accurate information of the debt but must also be mindful of the new maximum percentages allowed to be garnished and, of course, the increased debtor protections.
For example, the homestead exemption has been increased to $400,000 from $250,000 and the exemption for furniture and personal goods has increased to $15,000. Debtor’s equity in a personal vehicle is now protected from $6,000 up to $15,000 ($25,000 if the debtor or a dependent has a physical disability). Previously, debtors could only exempt $300 in a personal bank account and that amount has been increased to $5,000.
As a result, pre-collection analysis and examination of the debtors assets and collectibility is at a premium.
For debtors, Proposition 209 provides enhanced protections against predatory practices and helps them maintain a livable income during the debt repayment process. However, they also need to be aware of their rights and responsibilities under the new law. There are some significant changes to property that are protected from collections as discussed above. As a part of the new laws, these amounts will be adjusted each year to reflect cost-of-living increases as well.
How RSN Law Can Help
As an Arizona law firm with extensive experience representing both creditors and debtors, we are uniquely positioned to assist clients in navigating the new laws introduced by Proposition 209.
For creditors, we can provide guidance on revising collection procedures to comply with the new regulations, avoiding legal repercussions. For debtors, we can ensure they understand their rights and help them manage their financial obligations under the new legislation.
Proposition 209 has introduced significant changes to wage garnishments and debt collection practices in Arizona. However, creditors and debtors can successfully navigate this new landscape with the right guidance and understanding. Contact RSN Law today at 480-712-0035 to schedule a consultation or make an appointment on the contact us page of our site.
RSN Law intends this article to be for informational purposes, not to be relied on a specific legal matter, and does not create an attorney-client relationship.