Resorting to the courts to collect private debts: How laws affect wage garnishment and access to credit, cases argued in civil judgments

Abstract

Through court orders called civil judgments, creditors can garnish wages and property for unpaid consumer debts. We provide the first comprehensive description of civil judgments across states and time. Civil judgments are about twice as frequent as bankruptcy filings. Civil judgments are 20 times more common in some states than in others. Their incidence is highest around age 40, declines with credit score, and is concentrated in census tracts with higher proportions of black residents. To understand the variation across states, we construct the most comprehensive panel measuring wage garnishment across states. We show that a decrease in the garnishable amount per week decreases the number of judgments per capita and increases the average amount of civil judgments. These results are consistent with a simple theoretical model in which creditors optimally choose which debts to take to civil court. However, a decrease in the garnishable amount reduces credit card limits and open credit card accounts. The results suggest that policymakers may need to weigh access to credit when considering debtor protection.