What Happens If You’re on Social Security Disability and Can’t Pay Your Credit Card Debt?

When you’re on Social Security disability, credit card debt can seem like an unavoidable and inescapable problem. Those on a fixed income often find themselves turning to credit cards to pay for basic necessities or unexpected expenses that their Social Security checks alone can’t cover. Then, once they’re in debt, their fixed income makes it difficult to fit credit card bills into their budget.

If this describes your situation, it’s important to learn as much as you can about the consequences of unpaid debt, what creditors can and can’t do, and what your options are. Let’s start with how debt collection works when a person receives disability benefits.

Can Creditors Garnish My Disability Benefits to Pay My Credit Card Debt?

In general, no — creditors cannot garnish your disability income to pay off your credit card debt. The law offers special protection for those who receive certain federal benefits, including Social Security disability. Because of rules the U.S. Department of Treasury set, your bank will automatically protect your disability income from creditors. However, some exceptions and limitations do exist:

• Direct deposit. Your disability benefits must be direct deposited into your bank account or loaded onto a prepaid card. If you receive your benefits via a paper check and deposit the funds yourself, the bank does not have to protect your account from being frozen or garnished.
• Two months. Only two months’ worth of Social Security income will be protected. When it receives a garnishment request, your bank will check your account history to see if you have received any disability benefits via direct deposit in the last two months. If you have, they will protect that amount of money. If your account contains more than two months’ worth of benefits, the bank can garnish or freeze the extra amount.
• Government debts. This protection does not apply to government debt and child or spousal support. Although your disability benefits will generally be protected in the case of credit card debt, they can sometimes be garnished to pay government debts, such as back taxes or student loans, and child or spousal support.

As an example, let’s say you receive $1,000 of Social Security disability benefits per month and your account balance is currently $4,000. As long as your benefits are being direct deposited into your account, your bank will automatically protect $2,000 in your account from being frozen or garnished by creditors, so you can keep paying your bills. The extra $2,000, however, could be subject to garnishment.

How Does the Garnishment Process Work?

It’s important to note that debt collectors, including credit card companies, cannot garnish your bank account or ask the bank to freeze your account without a court judgment. To start this process, the debt collector will sue you for the debt. If he or she wins the case, the debt collector gets a judgment of debt against you. After that, the debt collector can get a court order requiring your bank to garnish money from your bank account or prepaid card. The bank will automatically protect at least a portion of your disability benefits, following the rules outlined above.

Keep in mind that if you are sued for a debt and don’t show up to court, the creditor will automatically win a default judgment. In addition, if your bank garnishes or freezes any of the money in your account, you will receive a notice of garnishment. Depending on the source of your income and other factors, you may be able to claim an exemption. The notice of garnishment may explain how to do this. Once you take the proper steps to claim an exemption, a judge will decide whether your money should be handed over to creditors.

What Should I Do If My Account Is Frozen or Garnished?

If your account is frozen or garnished and the source of your income is Social Security disability benefits, you should inform the creditor, the court, and the bank of that fact immediately. You can use a sample letter from the Consumer Financial Protection Bureau to inform creditors that your income is protected from garnishment.

You should also seek help from an attorney. A lawyer can look at your specific situation — including your income sources and the laws in your state — to determine how much of your income and which of your assets are protected. A lawyer can also advise you of any steps you should take.

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Can I Pay Off My Credit Card Debt?

If you have the financial means to pay off your credit card debt, that may be the simplest option. However, most people who receive Social Security disability benefits are on a fixed income that doesn’t leave much room for making debt payments. In that case, attempting to pay off your debt may not be feasible. However, you may be able to work with a debt relief company to help resolve your debt.

In the event you cannot afford to pay your debt, the following facts are worth noting:

• People who receive Social Security disability benefits are generally considered “judgment proof.” This means that even if your creditor receives a judgment against you, his or her options for collecting what you owe the creditor are limited.
• Only the actual cardholder is responsible for credit card debt. If you cannot pay off your credit card, that burden will not be transferred to your loved ones after you pass away. Unless a family member cosigned your account, the debt will not be passed on to anyone else.
• You don’t need to file for bankruptcy to get creditors to leave you alone. Under the Fair Debt Collection Practices Act, you can write a cease and desist letter to a debt collector. Upon receiving this letter, the collector must stop all contact by phone or mail.
• You generally shouldn’t sell off assets to pay your debt. Even if some of your assets are not protected from debt collectors, companies will rarely attempt to claim your assets. Doing so requires a complicated and expensive legal process that typically isn’t worth the trouble for creditors. Plus, if you’re on a fixed income, replacing any assets you sell will be difficult.

If you’re interested in working with a debt relief company to settle your debt, Solvable can help. Take our eligibility quiz to learn about any special programs you may qualify for, or call 855-391-9733 for a free, zero-obligation consultation.