Can't pay card bills after medical crisis: What to do?

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question Dear To Her Credit,
I am on Social Security disability benefits and also have a small pension. I had a stroke and it has affected the left side of my body and the right side of my brain. Another job is out of the question. I am also being treated for PTSD that is related to situational induced stroke.

I was not prepared for retirement at this point in my life, let alone disability. My income was suddenly cut in half, but my bills were not. As a result, I was using credit cards to buy groceries and pay medical expenses and so on. I rent a home and lease a car. I have no assets whatsoever.

I am struggling to pay all my bills. The one credit card that I am considering just not paying is one that if I only pay the minimum, they tack on another $35 a month. So not only am I paying interest, I am paying this ridiculous fee. I was told by someone that I am “uncollectible” and if worse comes to worst, I should just stop making payments.

I can’t afford a bankruptcy and don’t want to use those companies that charge a crazy fee for doing debt consolidations. I have always paid my bills, but I am now overwhelmed. Under my health situation and being on Social Security disability and small pension, is it true that if I don’t pay, they can’t do anything to me?

I plan to continue trying to meet all my other creditors. I live alone and am in Florida and 64 years old. Please advise. – Ann


Dear Ann,
You are at a point in your life when you are considered to be “uncollectible” – in other words, creditors have little or no chance of collecting from you. Sometimes this is also called being “judgment-proof.” You didn’t arrive there through any fault of your own, but through a life-changing medical calamity.

When credit card companies and other creditors attempt to collect past due debts, they try to attach your income, such as wages, or your assets, such as real estate you own. You have no wages, and your Social Security benefits are safe, provided you have them directly deposited to your bank account. Since 2011, federal regulations have made banks responsible for tagging electronically deposited benefit payments and keeping them safe from freezing or garnishment.

Not all states protect pensions from garnishment by creditors. Fortunately for you, Florida protects several different types of income from garnishment, including all pensions and retirement benefits.

Even if you lived in a state that allowed garnishment of pensions, you could probably prevent garnishment by showing you need your monthly income to pay basic living expenses.

It’s a serious decision to deliberately stop paying a credit card bill or other creditor. For most people, it is stressful to know you are defaulting on a debt. You may even feel guilty. I would encourage you to remember that you didn’t just decide to get in this situation, and that collection laws in this country were designed to protect people like you.

Before the credit card company steps up efforts to collect, you should be proactive and write a letter telling your issuer that you are judgment proof and unable to pay, and instruct your issuer not call or otherwise harass you.

If you are taken to court for the debt, don’t ignore the summons. Show up to represent yourself and prove your case.

Stopping payments on a credit card account will harm your credit score, of course. That may be unavoidable in your case.

Based on your story, you are right about bankruptcy and debt consolidation. You don’t need and can’t afford bankruptcy. You have no current or future assets for a bankruptcy to protect. Debt consolidation works well for some people who can work their way out of debt. That’s not the case for you.

As you plan your future, it’s more important than ever to make a realistic budget. If you can’t plan a balanced budget with your new, limited income, you may have to make more changes, such as giving up on paying other debts, changing living arrangements or giving up your car – as difficult as that would be.

If you aren’t sure how to create a budget, or you need help making these decisions, I recommend talking to someone at a nonprofit credit agency affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America. They can look at all your financial details and help you make the best decision.

See related: Court judgments for debt: 4 options after the gavel

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Updated: 11-14-2018