What You Ought To Know About Disability And Credit Card Debt
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For most people living off disability benefits, there’s a constant struggle to stay afloat financially. The modest monthly payments aren’t enough to live on, especially when you factor in medical expenses and the like. So it comes as no surprise that so many disabled Americans have huge amounts of credit card debt they can’t pay, often incurred before they were disabled.
So what happens if you find yourself with credit card or other debt you just can’t pay? What can you do about telephone calls from collectors or if you’re sued for old debt? Find out these answers and more in this post…
WHAT HAPPENS IF YOU DON’T PAY YOUR OLD DEBT?
The most important thing to know is that social security in all its forms including SSD is protected by federal law from garnishment from debt collectors. Almost all states have laws that protect private disability too. Even if a creditor files a lawsuit and obtains a judgment, they can’t take your disability income. You don’t have to pay the old debt you can’t afford to pay.
WHAT ABOUT MONEY IN YOUR BANK ACCOUNT?
Your bank account into which social security is deposited is also protected from garnishment. Federal banking regulations automatically protect twice the amount of federal benefits, including social security, electronically deposited into a checking account, no matter the source of the funds in the account at the time of a garnishment.
So, for example, if you receive SSD of $1000 per month, $2000 is automatically protected in your bank account no matter the source of the funds in the bank account at the time of garnishment.
IS THERE A WAY TO STOP COLLECTORS FROM CALLING ME AND SENDING DEMAND LETTERS?
Yes, you can send a “cease and desist” letter to a debt collector. The Fair Debt Collection Practices Act provides that when you send this letter (it must be sent in writing), collectors must stop all contact by phone or mail. A copy of this letter can be found on the internet or at this website: HelpIsHere.org.
WHAT IF I OWE PAST DUE INCOME TAXES?
While not common, the IRS may garnish 15% of SSD income for past due taxes owed. However, almost anyone receiving disability income will qualify for what’s called “noncollectable now status” with the IRS. This status means you won’t have to pay any taxes at all. State tax collectors can’t legally garnish social security income.
DO I NEED TO FILE BANKRUPTCY?
Because your disability income is protected, the short answer is no. For this reason, besides the cost, bankruptcy generally isn’t necessary. Sometimes disabled persons file bankruptcy simply to stop collector calls. There are far easier or less expensive ways to stop collector calls than by filing an unnecessary bankruptcy.
WILL SOMEONE ELSE BE RESPONSIBLE FOR MY CREDIT CARD DEBT I DON’T PAY?
Only the cardholder is responsible. If you’re disabled with a terminal illness, your credit card debt won’t transfer to anyone else after you die. However, this only holds so long as you don’t have joint co-signed credit cards co-signed with your spouse or another family member.
WHAT IF I WANT TO PAY OFF MY DEBT?
You can always choose to pay old debt or settle with collectors. However, that decision isn’t always wise or practical. Disability income generally doesn’t leave enough extra money to pay the old debt.
Debt settlement companies are “for profit” companies that attempt to settle debt for a fraction of what’s owed. They charge a fee for this service. Debt management companies or consumer credit counseling companies are non-profit. They work out a budget to pay old debt from your current income. Neither of these types of companies will tell a disabled person that his/her income is protected by law and can’t be taken from them. The Federal Trade Commission, FTC, advises caution in dealing with these companies.
SHOULD I SELL ASSETS TO PAY OFF OLD DEBT?
This isn’t generally a good idea. Every state has exemption laws that protect assets. Consumer judgment collectors will never take steps to take a person’s assets, even if there are assets that aren’t exempt under state law. It’s simply too expensive and complicated, let alone unproductive to engage in this kind of collection attempt.
Because of your limited income, these assets can’t be replaced. Any proceeds from the sale of assets are necessary for your basic needs.
WILL THE DEBT EVER GO AWAY?
Every state has what’s called a statute of limitations that provides a time limit after which a collector can’t legally file a lawsuit to collect a debt. In most states, this varies from 3-6 years for a credit card debt. A judgment is generally in effect for ten years and can be renewed. However, as explained, persons on disability are generally “judgment proof,” meaning the judgment holder can’t do anything to collect.
WHAT ABOUT FUTURE CREDIT?
Since 2008, credit availability is largely determined by a person’s income. Even a person with an excellent credit rating will have difficulty obtaining credit with minimal income. Secured credit cards are available.
WHAT HAPPENS IF I WANT TO EARN EXTRA MONEY / WHAT CAN I DO TO KEEP THAT MONEY SAFE?
The extra money you earn over the internet or otherwise can easily be protected from collectors. It will be available for you and your needs. You don’t need to worry that any extra money earned will have to be used to pay old debt. Here are reasons why this extra money is safe as well as some rules to follow:
- Before anything could even possibly happen, a creditor would have to file a lawsuit against you and get a judgment.
- Remember twice the amount of social security in your bank account into which social security is deposited is protected from garnishment by federal regulations, no matter the source of the funds in the bank account at the time of the garnishment. Banks are required to examine bank accounts that are garnished and can determine if social security is deposited into the bank account. So money from a little business deposited into your social security bank account is safe as long as the total in the account is less than twice the amount of monthly social security.
- Federal law protects a net $217.50 per week in wages from garnishment or around $945 a month.
- Some persons on disability form a limited liability corporation to operate a small business. An LLC is a different legal entity. A creditor that has a judgment against an individual couldn’t garnish a bank account held in the name of an LLC.
- Consumer judgment creditors such as credit card companies never aggressively pursue persons on disability. It’s simply not practical or economical.
NOW IT’S YOUR TURN!
What your thoughts about credit card and consumer debt while receiving disability benefits? Leave your comments below!
ABOUT THE AUTHOR:Eric W Olsen | Executive DirectorHELPS Nonprofit Law FirmBringing Peace to Seniors and Disabled Persons
HELPS Nonprofit Law Firm is a 501(c)(3) organization that represents seniors and disabled persons in all 50 states to receive collector communication under the Federal Fair Debt Collection Practices Act. HELPS educates seniors and disabled persons about how to maintain their financial independence. HELPS does not represent persons in court or provide legal advice. No qualified person is turned away. Please visit HelpsIsHere.org to learn more.
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This is a awesome site to help people with their disability money . Sometimes creditors love to threaten to take away the only money they have to get them to pay. It kind of sucks actually but it is awesome that you are trying to ease their mind. I think that is great.
Yes, there are ways to get out of this situation, thanks for commenting.
HI Stephan,
You offered some really beneficial tips to people, suffering from disabilities and who unfortunately have high credit card debt. I did not know that figure you mentioned, over $5,000 on average owned by U.S. citizens – and as you stated higher for people with disabilities.
It is great in a way that once a person dies his/her credit card debt cannot be transferred to another person, as you mentioned in this article. I don’t believe that this holds the same for people without disabilities and who die. My mom who passed away in 2012, (not disabled) had a minor debt owned on her cards which because she had a lot of money saved as part of her will my sister acting as the executor of her estate simply paid it off.
It really is a shame that the U.S. govt. can’t somehow provide more financially for people who have disabilities, particularly if they are unable to work. But our elected govt. officials have other irons in the fire traditionally enacting other costly programs that best serve only a minority of the population. And don’t get me started on how the wealthiest people in the U.S. statistically pay the least amount proportionately in federal and state taxes compared to the middle and low class individuals
Your site offers some very practical advice for disabled people Stephan I applaud you for spending so much time on it, sir.
Jeff
Thanks for commenting Jeff! Yes, a lot of disabled individuals are struggling financially, think about the veterans for example! I’m glad my blog is of help to you.
Credit cards deserve to lose money from disabled people, they know their income when they issue them a credit card yet the keep increasing their credit limits almost seducing them to go even deeper in debt.
Disabled people are not earning enough to live today, what does the credit card companies expect them to do if you need food they must use their cards if they do not have the funds.
Yes I agree Jeff, although it’s always possible that a credit card is issued before becoming disabled. Nevertheless, it’s a crappy situation.
You are so right! Most of our credit cards were active way before my disability.; others a mix from my husband’s disability. I use to pay most of the accounts, all medical, insurance and other. Now my cancer, Fibro, back & other from an accident has me disabled. I am struggling to pay my accounts, the mortgage, joint accounts, & high medical. 2 companies, Sears & Citi-Bank put him in their “specialty hardship program” & now they send the companies elsewhere for collections after a year & a half. We cannot make up or begin to pay these accounts. My husband is insulin dependent, & I have chronic pain. Very high medical that doesn’t cover our ssd checks. We hold over, & I get a pension to barely make our living. We’re over the wage limit so no help. Please help suggestions???
Debt and disability is an important topic and I am glad I read this post. Credit cards can so easily lead us down a path of financial insanity that I wish as consumers we were more educated in what they can do do us. I always think of the saying “live within your means” when the subject of credit cards comes up. My experience with bankruptcy was very different than the caution expressed here. Knowing I was applying for SSDI soon, and that I had a bunch of credit card debt that I would not be able to pay, I filed Chapter 7. It was a fast process, from start to finish 3 months, and the cost of the attorney and filing fees was very reasonable considering all the relief that I obtained. I only had to appear in court once. Today I can honestly say that I wish I had not waited so long to file.
Hi Erin, consider yourself lucky that your bankruptcy went so smoothly! I hope you’re able to regain some financial security now that you’ve been awarded SSDI!
I found your site very easy to navigate and your info on credit card debt and disability very eye opening. You make sense of topics that can seem a bit daunting for someone who has not thought of the specifics of certain aspects of debt from a point of view of having a disability. Credit card debt is something that so many of us battle even without the added variable of a disability. The info you presented is very good to know. Thanks!
Thank you Robert
I so appreciate the thoroughness of your article, Stephan. Although I am not currently receiving disability, I did apply. I don’t think it ever would have occurred to me to have a separate checking account, just for disability payments. I did, however, apply for credit card hardships, so that is definitely a relief.
Applying for disability is quite an extensive process, it seems one would need a lawyer just to navigate through the process. Thank you for your insight, Stephan.
You’re welcome Veronica 🙂
Hello,
Can a credit card company (Synchrony) lower your credit limit if you report Disability? Recently my mother did and wanted to pay the card off to not have debt and use what matter especially since its a care credit card for health. They are using the excuse of credit worthiness yet the credit and income is far better than when we originally applied and have never missed a payment even paying weekly at one point. Thank you for your time.
Hi Jenn, I’m afraid I don’t know the answer to that question. That said, I did find a comment on this post, which may be of help. Best of luck…
My Mom has been on disability for over 10 years and is not able to take care of her own money so she has a payee. Part of her disability makes her do rash decisions and in doing so she applied for a bunch of credit cards and wasn’t truthful on the amount of money she makes. She has no racked up over $10,000 in credit card debt. There’s no way she can pay it off so should she file for bankruptcy or just let it go to collections. She is on government housing and has no assets.
Difficult to say. I suggest discussing this over with a bankruptcy attorney John. There are plenty out there who are willing to give a free consultation.
My mother in law has this same problem. I had to go to a legal aide office and find a pro bono lawyer. The lawyer has been tied up in court and hasn’t been able to comment so she just keeps accruing debt. Are there people who manage money for low income / disabled people?
I was working and became disabled in 2010 was unable to do the job anymore. I fought social security for 7yrs. I finally was approved for disability payments in 2017. I got disability insurance on my credit card before I was disabled. When I put in a claim to them, they only paid off the yr I became disabled and said they were closing the case. I’m still paying on the insurance? This doesn’t sound legal to me.