When credit card debt ruins retirement

Are Social Security and private pensions exempt from garnishment?

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
I have recently retired and have only my Social Security and a private pension. If I quit paying my credit cards, can my Social Security and private pension be garnished? I live in Arkansas and have a homestead that protects me from creditors except for taxes and credit for work done on my home. I do not have any credit on work for my home, nor do I owe any back taxes. If I die in the next few years, can the proceeds on the sale of my home -- if any -- be attached by the credit card companies? Thanks. -- Lorene

Answer for the CreditCards.com expert

Dear Lorene,
Congratulations on your retirement. I wish it was working out better for you.  From your letter it sounds as if now that you are retired and living on a fixed income, the payments on your credit cards have become overwhelming. Before you stop paying on those accounts, I'd like you to consider several things.

First, the collections process can be stressful and unpleasant. If you can avoid it, I would -- at all costs. Depending on how much you owe, it is unlikely that your creditors will simply accept that you are not going to make payments, charge off the balances and leave it at that. What is more likely is that the original creditors will turn over the balances to collectors, and they will work hard to collect what is owed. After numerous phone calls and mailed correspondence, you may wish for a way to make it all go away.

Second, your Social Security income is exempt from garnishment, unless you owe the government, and your private pension is most likely protected as well. However, you will need to notify your bank that all money in your account is from exempt sources. I would also suggest you check with your state's attorney general to assure that your pension income is indeed protected.

Third, if a judgment is granted by the courts to satisfy your debts, yes, the creditor can place a lien on your home that would be paid if and when your home is sold. The creditor cannot force the sale of your home, but with a judgment lien in place, the creditor would receive the amount owed, assuming the home sold for more than what was owed on any mortgage loan.

Fourth, I recommend you speak with a Certified Housing Counseling Agency that is able to explain what a reverse mortgage might do for you. Reverse mortgages are becoming more popular for people over the age of 62, and are a safe option for either taking a lump sum of money or a monthly amount given to you from the equity you have in your home. This money does not have to be paid back by you and might allow you a higher standard of living in those golden years you worked hard to achieve.

Last but not least, rather than stop paying on your credit card accounts, I would recommend that you at least visit with a qualified credit counseling agency to determine if you have the resources available to repay your debt. If you do not have enough income to repay, then you may qualify for Chapter 7 bankruptcy. Filing bankruptcy is not something that I normally recommend, but in your case, it may make the most sense.

There are two large, respected accrediting agencies that offer credit counseling. I am a member of the board of one, the Association of Independent Consumer Credit Counseling Agencies, and I hope you use its services. The other major accrediting agency is the National Foundation for Credit Counseling.

Take care of your credit!

See related: Take control of debt, avoid bankruptcy, Pay off credit card debt or declare bankruptcy, Income down, bills up. Time for credit counseling

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Updated: 01-20-2018