Credit Card Debt Forgiveness for the Disabled

Living with a disability can be a financial strain. It may limit your income or leave you unable to work. Credit cards can help cover gaps temporarily, but they can also leave you in debt. 

If you have difficulty keeping up with monthly payments, you might wonder about credit card debt forgiveness for the disabled. While there are no formal programs besides bankruptcy that can wipe out your credit card debt, there are some options for managing debt when you're disabled. 

What is credit card debt forgiveness for disabled Americans?

Credit card debt forgiveness for disabled Americans means reducing or erasing credit card debt. There is no single program, but here are some options:

• Hardship programs: Some credit card companies offer hardship programs to help people in financial trouble. These programs may lower payments, reduce interest, or cancel part of the debt.

• Legal protections: Disability benefits like SSDI and SSI are protected by law. Creditors cannot take this money, so it stays available for living costs.

• Nonprofits and state programs: Nonprofits and state programs may provide financial counseling or debt management plans. Groups like the National Disability Rights Network (NDRN) can connect you to local resources.

• Bankruptcy: If you can’t repay your debt, Chapter 7 bankruptcy may be an option. It can clear credit card debt if you meet income requirements.

What does it mean to be judgment proof?

Being judgment proof means that even if someone wins a judgment against you in court, you don’t have any income or assets that a creditor could take. All of your money is protected and the creditor doesn’t have a legal right to try to force you to pay the judgment. Here’s how it works.

If you don’t pay your credit card debt, you can be sued. If the lawsuit is successful, the court may rule that you have to pay a certain amount to your creditor. If you don’t, they could ask the court for permission to garnish your wages (take part of each paycheck until the debt is paid off) or even take money from your bank account. However, creditors don’t get a blank check drawn on the Bank of You. Certain assets and income are protected.

For example, money in an employee-sponsored retirement plan is exempt from legal judgments under federal law. Exempt means these accounts can’t be touched even if someone wins a judgment against you.

Government benefits are also protected. If your only income is general relief (welfare) or unemployment benefits, for example, creditors generally can’t make a claim against it. Other kinds of income that are protected include:

• Social Security benefits

• Supplemental Security Income (SSI) benefits

• Veteran’s benefits

• Civil service and federal retirement and disability benefits

• Servicemember pay

• Military annuities and survivor benefits

• Federal student aid

• Railroad retirement benefits

• Financial assistance from the Federal Emergency Management Agency (FEMA)

In a nutshell, you might be judgment proof if you have no income, if you receive government benefits, and you don’t own much in the way of valuable assets. 

How can you protect your bank accounts from garnishment?

A creditor who wins a judgment against you may provide your bank with a legitimate court order, and the bank is obligated to take money out of your account to pay the judgment. However, if the money in that account came from a protected source of income like Social Security, they can’t do this. The best way to protect your money is to receive the money by direct deposit into a bank account that’s separate from any unprotected income you also receive. This helps keep the creditor’s hands off your protected money.

Where this gets messy is if you fund an account with both protected and unprotected income. So, for example, suppose you have Social Security benefits directly deposited into a checking account. Suppose also that you work part-time, and have unprotected wages from that job going into the account.

As a result, you have an account with protected and unprotected money. It could be difficult to prove how much of it is protected. This is especially true if you’ve also spent money from the account over time.

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Social Security disability and credit card debt

Social Security disability benefits don't entitle you to credit card debt forgiveness. However, Social Security benefits are protected from creditors. Debt collectors can't take your Social Security benefits to satisfy unpaid debts. The same goes for Supplemental Security Income (SSI) and VA benefits.

If a creditor tries to garnish your bank account where you receive your benefits by direct deposit, your bank or credit union is required to automatically protect two months’ worth of benefits from garnishment. Amounts over that can be frozen or garnished, but it's possible to get those funds back if you can prove that they came from exempt sources. 

Your benefits are also protected from garnishment if your direct deposit goes to a prepaid debit card. 

To take full advantage of these protections, you must opt in to direct deposit of your Social Security disability payments or other protected income. 

How to get credit card debt forgiveness if you are disabled

There are two lines of defense if you have credit card debt you can’t pay. One is to do whatever you can to stop debt collectors from getting their hands on your money. The other is to get rid of the debt so they’ll stop pursuing you. 

It’s often wise to use both types of defense. Below are some techniques for doing that. 

Protect your assets

As mentioned, creditors can go after your assets if they win a debt collection lawsuit against you. You may be able to protect some of your assets by determining which deposits are exempt, and notifying your bank of those exemptions. 

When you sign up for direct deposit and keep your unprotected money separate, it’s easier to prove that the money in those accounts is untouchable. 

You can also protect bank accounts and other assets by responding to the lawsuit promptly if you’re served notice. If you are working with your creditors and through the courts, it may delay having your assets seized. 

Stop debt collectors from harassing

The Fair Debt Collection Practices Act (FDCPA) 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 written notice to the collection agency to request that they cease 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.

Dealing with debt collectors and getting help

How should you respond if collectors bug you? Above all, know your rights.

If you owe money, chances are good that you’ll hear from debt collectors. They could be employed by the creditor you owe, independent debt collectors hired by your creditor, or a completely new debt collector who purchased your debt.

Getting contacted by debt collectors is stressful enough. It’s even worse when unscrupulous collectors engage in shady practices designed to intimidate you. You don’t have to tolerate harassment. The FDCPA protects you, and learning about it could help you deal with debt collectors.

Here are a few details you should know.

• Collectors can't be mean or lie. They can't yell, threaten you, or try to trick you into paying more than you owe. They can’t use profanities when they talk to you. They can’t say they’re attorneys if they’re not.

• Debt collectors have to be respectful. They can’t call you between 9 p.m. and 8 a.m. They can’t call you at work if you ask them not to. They can’t post publicly on social media about your debt. They can’t harass your family members about your debt.

• Debt collectors have to stop contacting you if you tell them to. Just write them a letter saying you want them to stop calling. Keep in mind that if you tell them to stop contacting you, they may not have any way of letting you know they’re planning to sue you for the debt. A surprise lawsuit could make your situation worse.

Knowing your rights can help you feel more in control. You can look up the FDCPA on the FTC.gov site to get familiar with the rules.

Keep in mind that many of the FDCPA rules apply to debt collectors, but not to your original creditor.

Talk to your creditor about financial hardship relief

There is no legally mandated credit card forgiveness program, but many credit card companies offer some sort of help for hardship situations. You have to ask your credit card companies about what type of hardship relief they offer, and how to apply. Sometimes these aren’t formal programs, but just a willingness to work with customers on a case-by-case basis. 

When you apply for hardship relief, you may need to show proof of your hardship to qualify. Getting credit card debt forgiveness may be easier with a documented disability. This is especially true if that disability means you incur special expenses, or it limits your ability to earn a living.

Tips for working with credit card companies

Most of us have financial ups and downs. That’s normal. What matters is that you’re proactive in dealing with issues that arise. Here are some guidelines for working with credit credit card companies to solve yours:

• Don’t hide. Contact your credit card company as soon as you know you can’t pay a bill. If they have to chase you, it creates the impression you’re trying to avoid paying. If you come to them, it sets the tone that you’re sincere about paying what you can.

• Explain your situation. Let them know why you’re having trouble. If this includes reasons caused by your disability, mention that. It’s important they know there are legitimate reasons for your difficulty.

• Have a plan. Before you start negotiating, take a thorough look at your financial situation. Figure out what you can afford to pay, and then give details so they can see why that’s true.

• Understand their point of view. The credit card company is a business. They can’t afford to let you off the hook just to be nice, or out of sympathy. Explain your circumstances so they understand that what you’re offering is likely the best deal they can get. 

• Think about the future of the relationship. If you’d like to continue working with this credit card company, make it clear it will be worth their while. This might be impossible if you’re asking for debt forgiveness. However, if you are offering to pay what you owe if the payment terms are eased a little bit, it may be possible to hold onto the credit card. Emphasize what you will do differently to avoid similar problems in the future. 

• Get any agreement in writing. Whatever your creditor agrees to, be sure to get a written agreement. Especially if you plan to skip or reduce your payments temporarily.

How to qualify for credit card hardship programs

Some credit card companies may offer programs that can help you with your payments in unusual financial circumstances. Some of the ways they do this include:

• Postponing payments

• Reducing monthly minimum payments

• Suspending late fees

• Suspending interest charges

The catch is that credit card companies generally don’t advertise these programs. So, here’s how to try to qualify for a credit card hardship program with a disability:

1. Contact the credit card company. Ask if they have any hardship programs. Ask what to do to qualify.

2. Explain your hardship. This may include explaining how your disability has hampered your ability to pay. It should also include an explanation of how you intend to keep your finances on track in the future.

3. Gather your information. Pull together documentation for why you’d qualify for their program, how much you could afford to pay, and when you can pay it.

4. Apply. This may involve a form the credit card company provides, or simply presenting the information they’ve requested.

5. Review terms and conditions. Make sure the deal they’re offering is in your best interest, and that you can comply with the terms.

If you qualify, the credit card company might prevent you from making any new charges until your payment terms are back to normal. If you can’t catch up, they might cancel your account. 

Ways to protect yourself from credit card debt as a disabled person

Millions of people get into debt trouble without a disability. But a disability can create special expenses and limit your ability to earn an income, so it’s easy to understand how that could make debt especially hard to manage.

Still, if you hope to continue using credit, you need a plan for meeting your financial obligations. To do that:

• Research all sources of financial aid available to you.

• Gain a clear understanding of which medical expenses are covered by insurance.

• Make a sustainable budget that takes into account any disability needs.

• Build up emergency savings whenever possible.

Still stuck? Help is available

If your debt becomes overwhelming and you're unlikely to catch up, consider these measures for getting some relief:

• A credit card hardship program: Find out if your credit card company offers any flexibility on your payment terms due to special circumstances.

• Debt consolidation: If your credit score is good enough to qualify for a new loan, you could borrow enough to pay off multiple smaller debts. That could reduce the number of payments, so that your finances are easier to manage. If you get a lower interest rate or a longer repayment term, you could save on total interest charges or get a lower payment.

• Credit counseling: A credit counselor could help you create a budget and a plan to repay your debts. They could help you ongoing, until you feel more confident about managing your money.

• Debt settlement: If you can’t afford to fully repay your debts, your creditor might agree to a debt settlement. That means they accept less than what you owe, but consider it payment in full. The rest is forgiven. They may be convinced that getting something is better than getting nothing, and negotiating with you is generally cheaper than suing you.

• Bankruptcy: This is a legal process for dealing with your debts. Not everyone qualifies to walk away from their debts. Some people have to enter a payment plan instead. Talk to a bankruptcy attorney about the pros and cons for your situation. Many offer free consultations.

Regardless of your debt relief option, the most important thing is to not ignore your debts. Dealing with credit card bills when you have a disability may not be pleasant, but taking action is empowering. It’s the best way to preserve your resources and minimize long-term credit score damage. 

Decide which of the above steps is right for you and start working toward it today.