Quick Answer: Multiple new state and federal laws take effect in 2026 that strengthen consumer protections against debt collectors, medical debt reporting, predatory debt settlement companies, and wage garnishment. Oregon bans medical debt from credit reports starting January 1. Virginia prohibits home foreclosure for medical debt starting July 1. Illinois and New York protect domestic violence survivors from coerced debt. Tennessee now requires licensing and bonding for all debt settlement companies. Here is what each law means for you.
2026 brings a wave of new consumer protection laws across more than a dozen states, and several of them directly change the rules around debt collection, credit reporting, and your rights when creditors come calling. Some of these laws are genuinely meaningful. Others have gaps you should know about. Here is the full breakdown.
You are not your debt. But knowing your rights? That is how you protect your future.— Steve Rhode
I have been tracking debt-related legislation since the mid-1990s, and this is one of the most significant years for consumer protection at the state level. While Congress remains gridlocked on federal reform, states are stepping up. Some of these new laws address problems I have been writing about for decades. Others create entirely new categories of protection that did not exist before.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
In the latest issue (Sep 16): The truck was $28,999 online. At the desk it’s $31,400. As of yesterday, the FTC says the ad was the lie.
I write Your Money Actually most weekdays — actionable money information you will not find anywhere else, and the small decisions that compound. It is free, I sell nothing, and I take no money from any company I write about.
Let me walk you through everything that matters, organized by when these laws take effect and what they mean for real people dealing with real debt.
January 2026: Laws Already in Effect
Oregon Bans Medical Debt From Credit Reports (SB 605)
Starting January 1, 2026, Oregon prohibits medical providers from reporting medical debt to credit bureaus. Credit reporting agencies are also prohibited from including medical debt in consumer credit reports. Violations are treated as unlawful trade practices, and courts can void improperly reported debt.
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Key Insight: About one-third of Oregonians have carried medical debt in the past two years. The CFPB’s own research found that medical debt is less predictive of credit performance than other types of debt. In other words, a medical bill in collections tells lenders almost nothing useful about whether you will repay a car loan or mortgage.
Oregon joins Colorado, New York, Maine, and Vermont in banning medical debt from credit reports. This trend is accelerating because the data supports it. Medical debt is fundamentally different from other consumer debt. Nobody chooses to have a medical emergency. The fact that an ambulance ride can crater your credit score has always been absurd, and states are finally fixing it.
Tennessee Requires Licensing for All Debt Settlement Companies
The Tennessee Debt Resolution Services Act took effect January 1, 2026, and it is one of the most comprehensive state-level regulations of the debt settlement industry I have seen.
Here is what the law requires:
- All debt settlement companies serving Tennessee consumers must be licensed
- Surety bond of up to $50,000
- Fingerprints and criminal background checks for company officers
- Consumer funds held in FDIC-insured accounts owned by the consumer
- Consumers can terminate at any time without penalty
- Fees must be proportional to total enrolled debt or percentage of savings
And here is the big one:
- Companies cannot collect fees until at least ONE debt is actually resolved and the consumer makes a payment on the settlement
- Companies cannot send cease-and-desist letters to creditors on behalf of consumers
- Companies cannot misrepresent expected savings or timelines
- Companies cannot operate review platforms (goodbye, fake testimonials)
Warning: Penalties under the Tennessee law run up to $5,000 per violation with a $100,000 maximum. Attorneys acting within a genuine attorney-client relationship are exempt. This distinction matters because many debt settlement operations use attorney branding as a marketing tool without providing actual legal representation.
I need to be direct about this. I ran a credit counseling organization. I saw how sales pressure corrupts good intentions from the inside. The debt settlement industry has a predatory marketing problem. Settlement itself can work. If you have money saved and can negotiate a lump sum, creditors will settle. The math works. But the marketing is where consumers get burned. Companies promise 50 percent reductions, charge fees up front, and then disappear. Tennessee is trying to fix that, and the no-fee-until-settlement requirement is the right approach.
That said, fewer people are genuinely suited for debt settlement than the marketing claims suggest. If you are considering settlement, take my Find Your Path quiz first to see if it is actually the right option for your situation.
Illinois Increases Bankruptcy Exemptions (SB 1738)
Illinois significantly raised its bankruptcy exemption amounts effective January 1, 2026. If you are considering bankruptcy in Illinois, these changes are substantial.
| Exemption | Old Amount | New Amount |
|---|---|---|
| Homestead | $15,000 | $50,000 ($100,000 joint) |
| Motor Vehicle | $2,400 | $3,600 |
| Tools of Trade | $1,500 | $2,250 |
| Household Goods (NEW) | None | $5,000 (furniture, appliances, pets) |
| Bank Account Wildcard | None | $1,000 auto-protected |
The law also limits consumer debt judgment enforcement to 15 years with no revival. That means creditors cannot keep renewing a judgment against you indefinitely.
Key Insight: The homestead exemption jumped from $15,000 to $50,000. That is a 233% increase. For married couples filing jointly, the $100,000 homestead exemption means many Illinois homeowners can now file Chapter 7 without losing their home. This changes the math completely for people who have been avoiding bankruptcy because they were afraid of losing their house.
I wrote about the new household goods protection in detail. Read the full breakdown of the Illinois household goods exemption here, including how it protects your furniture, appliances, and even your pets from creditors.
Illinois and New York Protect Domestic Violence Survivors From Coerced Debt
This is an entirely new category of legal protection, and it is long overdue.
Illinois (Pub. Act 104-0297), effective January 1, 2026, protects domestic partners whose abusers coerce them into taking on debt through force or fraud.
New York (SB 1353) goes further by prohibiting creditor enforcement of consumer debt resulting from fraud, duress, intimidation, threat, force, or identity theft. This specifically protects domestic violence survivors from debts their abusers took out in their name or forced them to sign.
Two things about the New York law changed after it passed, and both matter more than the protection itself. Governor Hochul signed Chapter 90 of the 2026 Session Laws on March 18, 2026, citing “numerous technical errors, substantive issues and structural defects” in the version that had been enacted — so the operative effective date is June 17, 2026, not the February date that was originally on the books. And the state’s own Office for the Prevention of Domestic Violence is explicit about the limit: the law “only covers debt that occurred on or after the effective date” and “does not cover debt that occurred before June 17, 2026” — so if your abuser ran the debt up before that day, which is the usual situation, this New York protection does not reach it and the federal routes below are where to look.
Debt caused by domestic violence is a problem I have seen for decades. An abusive partner opens credit cards in your name. They force you to co-sign loans. They run up debt and disappear, leaving you holding the bill. Until now, creditors could pursue you for that debt regardless of how it happened. These laws start to change that equation.
Colorado Cracks Down on Junk Fees (HB 25-1090)
Starting January 1, 2026, Colorado requires clear disclosure of the maximum total of all amounts a person may pay. No more hidden fees buried in fine print. The price you see needs to be the price you pay.
Mid-2026: Laws Taking Effect Later This Year
Virginia Medical Debt Protection Act (HB 1725) — July 1, 2026
Virginia’s medical debt law is one of the most comprehensive in the country. Governor Youngkin signed it into law, and it takes effect July 1, 2026.
Here is what it does:
- Large health care facilities must wait 120 days after the final invoice before taking extraordinary collection actions
- No interest or late fees until 90 days past due
- Interest capped at 3% per year (even for medical debt buyers)
- 30 days notice required before any collection action
- Prohibits home foreclosure for medical debt
- Restricts wage garnishment for medical debt
- Violations treated as state UDAP (unfair and deceptive acts and practices) violations
Key Insight: The fact that Virginia needed to explicitly prohibit home foreclosure for medical debt tells you how broken the system has been. Nobody should lose their house because they got sick. The 3% interest cap on medical debt buyers is also significant because the secondary debt market routinely charges much higher rates on purchased medical accounts.
Free Tool — Wage Garnishment Calculator: Worried about your paycheck being seized? The free Wage Garnishment Calculator shows exactly how much creditors can legally take in your state — and some states prohibit garnishment entirely. Calculate My Risk →
Maryland Stops Contract Fine Print From Shortening Your Rights (HB 431) — June 1, 2026
Starting June 1, 2026, Maryland prevents consumer contracts from including clauses that shorten your statutory time to take legal action. No more fine print that gives you 90 days to sue instead of the full limitation period the law provides.
Oregon Increases Wage Garnishment Protections — July 1, 2026
Oregon raises the amount of wages protected from garnishment. Starting July 1, 2026, the protected amount increases to the greater of 75% of disposable earnings or $400 per week. Additionally, 19 states are raising their minimum wage on January 1, 2026, which indirectly affects garnishment calculations in those states.
Connecticut Requires Transparency for Auto-Renewals (SB 3) — July 1, 2026
Connecticut joins the growing list of states requiring annual reminders and easy cancellation for auto-renewal agreements. Starting July 1, 2026, companies cannot quietly renew your subscription without clear notice and a simple way to cancel.
California CARS Act Protects Used Vehicle Buyers (SB 766) — October 1, 2026
The California CARS Act gives used vehicle buyers a 3-day cancellation right and requires clearer disclosures about vehicle condition, warranties, and fees. This matters for debt because car loans are one of the biggest debt traps, and predatory used car dealers disproportionately target people who are already financially stretched.
Federal Student Loan Garnishment Returns — January 2026
Warning: This is the one development in 2026 that works against consumers. The federal government has resumed administrative wage garnishment for federal student loan borrowers. Garnishment is capped at 15% of disposable income, but it happens without a court order. If you are in default on federal student loans, you need to act now. Look into income-driven repayment plans, rehabilitation, or consolidation before garnishment begins.
Administrative wage garnishment means the Department of Education does not need to take you to court. They send a notice, and if you do not respond or request a hearing within the deadline, the garnishment starts automatically. This is a significant negative development for the millions of borrowers currently in default.
If you have federal student loans in default, do not ignore this. You have options. Income-driven repayment plans can reduce your payment to as low as $0 per month based on your income. Rehabilitation lets you make nine reasonable payments to get out of default. Consolidation can also remove default status. Any of these is better than having 15% of your paycheck taken automatically.
What This All Means for You
The overall trend is clear: states are filling the gaps that federal law leaves open. Medical debt protections, coerced debt recognition, and debt settlement regulation are all moving in the right direction. But laws only help if you know about them.
Tip: Not sure which debt option is right for your situation? Take the free Find Your Path quiz to get a personalized recommendation based on your specific circumstances. Different situations call for different approaches.
If you live in one of the states covered above, these new protections are real. Medical debt cannot appear on your Oregon credit report. Virginia hospitals cannot foreclose on your home. Tennessee debt settlement companies cannot charge you until they actually settle something. Illinois gives you more room to keep your home and belongings in bankruptcy.
The one area to watch closely is federal student loans. That garnishment authority is real and it is happening now. Do not wait for the notice.
Sources
- Virginia Legislative Information System — HB 1725 Medical Debt Protection Act
- Oregon Legislature — SB 605 Medical Debt Credit Reporting
- Tennessee Department of Commerce — Debt Resolution Services
- Illinois General Assembly — SB 1738 Exemption Increases
- New York State Senate — SB 1353 Coerced Debt
- Maryland General Assembly — HB 431 Statute of Limitations
- Colorado Legislature — HB 25-1090 Junk Fees
- Connecticut General Assembly — SB 3 Automatic Renewals
- California Legislature — SB 766 CARS Act
- Federal Student Aid — Collections on Defaulted Loans
Key Takeaways
- Medical debt protections are expanding fast. Oregon bans it from credit reports entirely. Virginia caps interest at 3% and prohibits home foreclosure for medical bills. More states will follow.
- Coerced debt is now recognized. Illinois and New York protect domestic violence survivors from debts their abusers created. This is an entirely new legal category.
- Debt settlement companies face real oversight in Tennessee. No fees until a debt is actually settled. Licensing, bonding, and background checks required.
- Illinois bankruptcy just became more accessible. Homestead exemption tripled to $50,000. New household goods protection. Judgment enforcement limited to 15 years.
- Federal student loan garnishment is back. Act now if you are in default. Explore income-driven plans, rehabilitation, or consolidation before the 15% garnishment hits.
Free Tool — Statute of Limitations Checker: Dealing with old debt? The free Statute of Limitations Checker tells you if the collection clock has expired in your state — including the zombie debt and clock-restarting traps collectors use. Check My Status →
Frequently Asked Questions
Can medical debt still appear on my credit report in 2026?
It depends on your state. In Oregon, medical debt is banned from credit reports starting January 1, 2026. Colorado, New York, Maine, and Vermont already have similar bans. Virginia’s law focuses on collection restrictions rather than credit reporting. For most other states, the three major credit bureaus voluntarily stopped reporting medical debts under $500 in 2023, but larger medical debts can still appear. Check your state’s specific laws.
What should I do if a debt settlement company in Tennessee charges me before settling any debt?
Under the new Tennessee Debt Resolution Services Act, this is illegal. Companies cannot collect fees until at least one debt is resolved and you have made a payment on the settlement. File a complaint with the Tennessee Department of Commerce and Industry. Penalties can reach $5,000 per violation. You may also have grounds for a private lawsuit.
Do the new Illinois exemptions apply to existing debts or only new ones?
The new exemption amounts apply to bankruptcy cases filed on or after January 1, 2026, regardless of when the debt was incurred. If you have been considering bankruptcy in Illinois, these higher exemptions may change the calculation significantly, especially the homestead increase from $15,000 to $50,000.
How do I stop federal student loan wage garnishment?
You have several options. You can request a hearing within 30 days of receiving the garnishment notice. You can enter an income-driven repayment plan, which can reduce payments to $0 based on income. You can rehabilitate your loans with nine reasonable monthly payments. Or you can consolidate defaulted loans into a new Direct Consolidation Loan. Any of these steps should be taken before garnishment begins.
Does the coerced debt law mean I can get out of debt my ex put in my name?
In Illinois and New York, if your domestic partner coerced you into taking on debt through force, fraud, duress, intimidation, or identity theft, you may have grounds to challenge that debt under the new coerced debt protections — but check the date before you count on it, because New York’s law only reaches debt incurred on or after June 17, 2026 and does not cover anything older. You will likely need documentation of the abuse or coercion. Contact a domestic violence legal services organization in your state for help navigating the process. These laws are new and legal precedent is still being established.
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
