On disability with $15,000 in card debt: Is house at risk?

Take these steps to prevent issuer from filing home lien

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 CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question Dear Sally,
I have been on disability for about eight years. I broke my back falling down the basement stairs. My husband left me because he could not live with my disability.

I own my home. I owe several creditors a total of about $15,000. I am living on disability benefits. I receive just enough money every month to live here (electric, water, trash, insurance, prescriptions, some medical bills, and so on). My son lives with me and takes care of me.

How do I protect my home? My son works less than part time. Some of my credit cards I have been paying on for the last 10 years. – Chandra

Answer Dear Chandra,
If you are living on disability benefits, and your only real asset is your home, the credit card companies and most other creditors have no way to collect from you at this time. You are probably what is known as “judgment proof.” Creditors cannot seize disability payments from recipients. Those funds are automatically protected by law.

Protecting your home for the long term, however, is another matter. Credit card companies won’t force you out of your home, but they can go through the legal system and try to put a lien on it. If that happens, they get their money – plus fees and interest – when you die or sell your home. This may not be what you want, especially if you expect to leave your house to your son.

You must take action as soon as you find that you cannot afford to make your minimum payments without jeopardizing your own care. Here’s what you should do:


  • First, send a letter to each creditor, stating that your only source of income is disability benefits and that you are unable to pay what you owe. Creditors spend the most time and money on accounts where they think they have the best chance of collecting. When they know you are on permanent disability, they may even automatically write off all or part of your debt.
  • Second, if the creditors persist and take you to court, you must respond and defend yourself. You should be able to show that you cannot afford the payments. Seek low-cost or free legal help in your state if necessary.


If you cannot make your debt payments, your credit history and credit score will suffer. In all the talk about the importance of credit scores, however, it’s important to remember what credit scores are for. You already have a house, and you’re not looking for a job in the near future. On your reduced income, you are unlikely to be able to refinance your house, and you don’t want to take on more debt. If there’s ever a situation in which someone’s credit score should be a lower priority than taking care of their current needs, it would probably be yours.

Although bankruptcy would generally wipe out your debts, it’s probably overkill for $15,000 in debts. Bankruptcy costs money, and it’s not that easy. You’re better off dealing with your creditors individually.

Don’t be alarmed if the creditors forgive your debts, and then next January you receive IRS Forms 1099-C showing the amount forgiven. This forgiven debt is generally considered taxable income, but you probably won’t owe tax on it, for two reasons. You don’t have enough taxable income, especially if you claim your adult son as a dependent, to owe income tax. In addition, if you were insolvent when the debt was settled or forgiven, meaning you had more debts than assets, you generally qualify for an exception to paying tax on the forgiven income.

See related: What to do about card debt when living on a fixed income, Rule protects exempted funds from garnishment

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Updated: 11-24-2017