Credit Card Debt Forgiveness For Disabled: Does It Exist?
- There are no federal credit card debt forgiveness programs for people with disabilities.
- Creditors can sue you for unpaid debt. Still, they may be unable to collect on the judgment.
- Debt management plans and debt negotiation can provide financial relief for people with disabilities.
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Living with a disability, whether temporary or permanent, can strain your financial situation if it means living on a limited income or being unable to work. Credit cards can help to cover the gap, but they can also leave you in debt.
If you have difficulty keeping up with monthly payments, you might wonder whether credit card debt forgiveness for people with disabilities exists. While no federal programs can wipe the slate clean on credit card debt other than bankruptcy, there are some options for managing debt when you're disabled.
The first line of defense: Are you judgment proof?
When a debt goes unpaid for an extended period, your creditors can take steps to collect what's owed. In the most extreme cases, your creditor might sue you in civil court to try and obtain a judgment.
Should the creditor win the case, they could take additional steps to try and garnish your bank accounts or your wages if you have an income. However, persons with disabilities may be protected from those actions if deemed to be judgment proof.
What does it mean to be judgment proof?
Being judgment proof means that while a creditor might be able to sue you and win a case in small claims court, they're barred from enforcing the judgment through wage or bank account garnishments.
In most cases, you're judgment proof if you:
Owe primarily unsecured debts
Have income that cannot be garnished
Are exempt from property seizures or liens
Are unlikely to see a significant change in your financial situation
Remember, your creditors can sue you even if you're judgment proof. The creditor just wouldn't be able to collect any money from the judgment. However, judgments can appear on your public record, affecting your ability to qualify for new loans or lines of credit down the line.
How can you protect your bank accounts from garnishment?
If a creditor decides to go after your bank account to satisfy a judgment, they'll need to obtain a court order. That order must be presented to your bank and once received, the bank is obligated to turn funds over to your creditor.
However, state and federal laws allow for exemptions to this rule. Specifically, the following types of deposits are protected from garnishment:
Social Security benefits
Supplemental Security Income (SSI) benefits
Civil service and federal retirement and disability benefits
Military annuities and survivor benefits
Federal student aid
Railroad retirement benefits
Financial assistance from the Federal Emergency Management Agency (FEMA)
If you receive any of these types of federal benefits via direct deposit, creditors technically cannot garnish them. State laws may protect additional deposits, including unemployment benefits, public assistance benefits, workers compensation, child support, or alimony payments.
Understanding which of your deposits are exempt is the first step in protecting your bank account from garnishment. If you believe your deposits are exempt, just note that the burden may be on you to prove it to the court.
You can also protect your bank account from garnishment by avoiding a judgment altogether. We'll cover some options for getting debt relief and avoiding judgments a little later.
What to know about Social Security disability and credit card debt
Social Security disability benefits do not include any specific provisions for credit debt forgiveness. However, those benefits are protected from creditors.
Debt collectors cannot take your Social Security benefits, including Supplemental Security Income (SSI), or any VA benefits you might receive to satisfy unpaid debts. Your bank or credit union is required to automatically protect two months' worth of benefits from garnishment. Any amounts over that can be frozen or garnished, but it's possible to get those funds back if you can show the court that they're exempt.
Your benefits are also protected from garnishment if you have them loaded onto a prepaid debit card. To take advantage of these protections, however, you do have to opt in to direct deposit of your Social Security disability payments.
How to get credit card debt forgiveness if you are disabled
If you'd like to ease some of the financial strain associated with credit card debt, there are some options for doing so when you have a disability. Weighing them can help you figure out what solution is best for you.
Protect your assets
As mentioned, creditors can go after your assets if they win a debt collection lawsuit against you. You can protect your assets by determining which deposits are exempt and notifying your bank of those exemptions.
You can also protect bank accounts and other assets by responding to the lawsuit promptly once you're served notice. You can use your response to let creditors know that you believe yourself to be judgment proof.
Stop debt collectors from harassing
The Fair Debt Collection Practices Act bars debt collectors from engaging in harassing behavior. If you believe a debt collector is unfairly harassing you, you can ask them to stop contacting you.
You'll need to send a written notice to the collection agency requesting that they cease and desist all contact. It's a good idea to keep a copy of the letter for your records. If the debt collector persists, the FDCPA allows you to sue them for damages.
Talk to your creditor about financial hardship relief
If you're experiencing financial hardship, your creditor might be able to offer some relief. Hardship programs can reduce your monthly payments, lower your interest rate and waive fees.
You may need to show proof of your hardship to qualify. And if you have multiple credit cards with different companies, you'll need to reach out to each one to ask about hardship solutions.
Not protected? Find a debt relief program
If you've tried all of the options listed here so far but are still struggling to keep up with credit card bills; there are some other possibilities to consider. Here are some ways to get debt relief when you have a disability.
Credit counseling. Credit counselors look at your debt and financial situation to offer solutions for managing your obligations. They can help fine-tune your budget and guide you through debt relief options, including debt management plans or debt negotiation.
Debt management plan. A debt management plan, or DMP, is an organized plan for paying down unsecured debts. When you enroll in a DMP, you agree to make one monthly payment to the debt management program. That payment is then distributed among your creditors. Debt management could be a good fit if you mostly have unsecured debts and can make the monthly payment required.
Debt negotiation. Debt negotiation, also called debt settlement, involves negotiating with creditors to pay less than what's owed. The remaining balance on your debt is forgiven. You might consider debt negotiation if you're significantly behind on credit card bills and in danger of being sued. A reputable debt negotiation company can guide you through the process and work with your creditors to reach the most favorable agreement possible.
Regardless of your debt relief option, the most important thing is not to ignore your debts. Dealing with credit card bills when you have a disability may not be pleasant, but taking action is the best way to preserve your assets and protect yourself against credit score damage.
What happens to credit card debt when you go on disability?
Unfortunately, credit card debt doesn't disappear when you begin receiving disability payments. You'll still need to pay those bills, and if you're unable to, your creditors could take legal action against you. The good news is that certain payments, including Social Security benefits, are protected from wage and bank account garnishments.
Is there disability insurance on credit cards?
Credit card companies can offer special programs to protect you if you're temporarily disabled and can't keep up with your payments. You pay a fee to the credit card company, either monthly or annually, and in exchange, the credit card company covers your minimum payment due if you become disabled. These programs typically have a time limit for how long you can use them, and they typically won't erase your debt entirely.
Can a credit card company sue you if you're on disability?
Yes, credit card companies can sue you for unpaid debts even if you receive disability benefits. However, whether the credit card company can collect a judgment through wage or bank account garnishment will depend on where you live and whether any of your assets are exempt.