There are no official programs offering credit card debt forgiveness for disabled people. Still, if you have a disability and owe credit card debt, you do have rights that may protect you from being sued or having your assets garnished to repay your creditors. Essentially, your debt won’t be forgiven, but you may not end up needing to pay it back.
Eventually, your debt may even pass the statute of limitations, meaning debt collectors will no longer have legitimate grounds for making you repay what you owe. The exception is if they successfully sued you before the statute of limitations expired.
Being Judgment-Proof for Credit Card Debt
If you don’t pay back what you owe on a credit card, your credit card company or the debt collection agency they’ve sold the debt to can try to get the money back by getting a court judgment against you. However, if you have a disability, you may be “judgment-proof.”
What Being Judgment-Proof Means
Being "judgment-proof" means you lack the financial resources or assets needed to satisfy a judgment in a lawsuit. People with disabilities whose income comes solely or partially from federal disability benefits are protected by federal law from having those benefits garnished if they have less than a certain amount saved.
Protected benefits include Supplemental Security Income (SSI) as well as disability benefits you might get after retirement from civil service or as a veteran. Courts can still get a judgment for money from non-protected income sources, though.
How Being Judgment-Proof Protects You From Garnishment
Money from federal disability benefits that’s put in your bank account through direct deposit or loaded on a prepaid card cannot be “garnished,” unless you have more than two months’ worth of benefits saved, according to the Consumer Financial Protection Bureau. In other words, that money can’t be taken by court order to pay your credit card debt.
For example, let’s say you receive $2,000 per month in disability benefits:
- You can have up to $4,000 in your accounts exempt from garnishment, thanks to federal law.
- Your bank can turn over money above $4,000 to your creditors or debt collectors. However, they must leave you at least $4,000.
When Disability Benefits Are Not Protected
Keep in mind that if you receive your benefits by check and then deposit them yourself rather than getting the money through direct deposit, your bank will not protect your funds. To get this money protected, you will have to prove in court that it comes from federal benefits.
In addition, Social Security Disability Insurance (SSDI) might be garnished if you owe money to the government or you owe child/spousal support.
Please note that the information presented in this article does not constitute legal advice. You should consider consulting with a legal professional or a financial advisor to understand the specific laws and regulations that determine your eligibility for being considered judgment-proof based on your disability and financial situation.
Settling Credit Card Debt
One way to have a portion of your credit card debt forgiven when you have a disability is to settle your debt with your credit card issuer. Settling your debt involves paying a lump sum of part of your debt immediately and having the rest of your debt forgiven. If you are on a limited fixed income, this may be difficult, but if you have the means to make such a lump-sum payment, this can be a good way to clear your debt entirely.
How to Settle Your Credit Card Debt
- Assess Your Financial Situation: Start by evaluating your financial status. Write down your total credit card debt, interest rates, and monthly income. Consider how your disability affects your income and expenses.
- Contact Your Creditors: Reach out to your creditors to discuss your situation. Explain your disability and any financial challenges you're facing, and ask about the potential for a settlement. Keep in mind that you will likely need to be delinquent on your debt to settle. If you are not already delinquent, you could become intentionally delinquent to ask for a settlement, but that will damage your credit score.
- Negotiate a Settlement: Debt settlement involves negotiating with your creditors to pay less than the full amount you owe in exchange for them considering the debt paid. Have a plan for an amount to suggest going into your discussions, as well as a bottom line you’re not willing to go beyond.
- Pay the Lump Sum: Once you have upheld your end of the agreement, the rest of your credit card debt will be forgiven.
If possible, try to work the situation out yourself with your credit card issuer rather than using a debt consolidation or debt settlement company. Not only will these companies often charge you expensive fees, but they may also encourage you to practice financially irresponsible behavior like withholding payments to get in a better bargaining position.
Waiting Out the Statute of Limitations for Credit Card Debt
Waiting out the statute of limitations for credit card debt can be a good strategy if you have a disability, you’re very delinquent on your credit card debt, and you’re close to the statute of limitations running out. The statute of limitations sets a time limit on how long creditors have to sue you for an unpaid debt.
Depending on the state, this period ranges from three to 15 years. After the statute of limitations expires, you can get any lawsuit thrown out by proving the debt is too old, or time-barred. While the debt is not forgiven, you can’t be forced to pay it back.
Keep in mind that certain things can “reset” the statute of limitations on credit card debt. Making a payment or even acknowledging that you owe the debt can set the clock back to zero. In addition, waiting out the statute of limitations has negative consequences. Your credit score will suffer during the time between when you start being delinquent and when your issuer charges off the debt and sells it to a collection agency. A charge-off will stay on your credit report for up to seven years, too.
If your creditor successfully sues you before the statute of limitations ends, then your only option is to hope your assets are protected against garnishment.
Other Credit Card Debt Solutions
There are other ways for people with disabilities to deal with credit card debt that don’t involve having the debt forgiven.
- Hardship program: If you feel you are only having temporary difficulty paying your credit card bills due to your disability, you can call your issuer and ask if they will put you on a hardship program. This can temporarily lower your interest rate or let you defer payments to help you get back on your feet.
- Debt management: Debt management involves working out a new agreement with your credit card issuer. It doesn’t forgive any debt, but it can allow you to get a reduced interest rate, lower monthly payments, waived fees or more in order to help you keep up with your credit card bills.
- Balance transfer: You can transfer your existing credit card debt to a balance transfer credit card and get 12-21 months to pay back the debt interest-free. You’ll need good or excellent credit to qualify for the best offers, though.
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