Disabled and in debt: 7 options to consider

There’s no easy solution, and sometimes hard choices need to be made

Tamara E. Holmes
Personal Finance Writer
Writes regularly about personal finance and health

Disabled and in debt: 7 options to consider

For people who have amassed a lot of credit card debt, one solution is to work more hours or take on side jobs to make extra money to pay off the debt. But for someone who has a disability, working harder – or working at all – may not be an option.

In the United States, one of every five adults – 53 million – has a disability. Among people living with a disability, only 17.5 percent were employed in 2015, according to the U.S. Department of Labor.

“People with disabilities and in deep financial trouble desperately need help,” says Donald Coggan, founder of Ability Mission, an organization that provides guidance on finding disability benefits.

Martha De La Chaussee knows that firsthand. When a medical diagnosis left the former field officer for the Internal Revenue Service no longer able to handle the day-to-day duties of a full-time job, she was stuck managing her current bills and lifestyle with no income. She tapped her savings and her retirement account, but the money was gone within a year. “I lost everything,” she says.

If De La Chaussee’s story sounds familiar and you or someone you know is struggling to manage a disability and debt, here are seven steps to take to begin to find some financial relief:

1. Face your new future.
If you’ve recently become disabled, it’s important to reassess your financial situation in light of your new reality, says Todd Christensen, director of education for the National Financial Education Center at Boise, Idaho-based credit counseling organization Debt Reduction Services. Ask yourself such questions as: How much debt do I have? What kind of debts are they? What can I really expect as far as income?

While you might have taken on the debt with the expectation that you would earn enough income to pay it off, your disability may now make that initial goal impossible.

“People with disabilities and in deep financial trouble desperately need help.”

2. See if any of your debts are forgivable.
While it’s unlikely you’ll be able to get out of your credit card bills or your mortgage, there are some relief programs for people who are disabled.

For example, the U.S. Department of Education offers a total and permanent disability discharge process, which relieves those who are permanently disabled from having to pay back certain federal student loans. In 2016, the Department of Education identified 387,000 Americans who qualified for the discharge process.

Having some debts discharged might free up money to pay down those that are left.

3. Make sure the debt is collectible.
Sometimes debts get sold from one creditor to another. However, it’s not unheard of for the paperwork from the initial debt agreement to get lost in the process.

If a creditor comes after you for a debt, you have the right to ask for proof that you actually owe the money. If the debt collector can't provide that, then they don’t have the legal right to collect, says Joseph Wehr, a financial educator with Philadelphia-based credit counseling organization Clarifi. 

4. Determine whether debt repayment is possible.
Having a disability does not automatically mean that you can’t raise some money. Some people with disabilities have collected donations through crowdfunding websites such as GoFundMe.com, while others have had some luck making money working from home, Coggan says.

There are also federal and state programs that can help, plus financial resources such as employment assistance programs that can train you for work that you can do with your disability, Christensen says.

Keep in mind that if you receive Social Security Disability Insurance, you must be physically unable to work, so starting a business may cause you to lose your benefits. If you receive Supplemental Security Income, another benefit given to people who are disabled, the amount of your benefit may decrease or be eliminated if you make substantially more money.

5. Negotiate repayment terms that work work for you.
So what if you can only afford to make partial payments on your debts? You may be able to contact your creditors and negotiate lower payments or a lower interest rate, Christensen suggests.

Credit counseling organizations also can help you with this since they have relationships with credit card companies and may be able to negotiate a debt settlement agreement for you, coming up with a payment plan that you can afford.

If you have some extra money in the bank, you may be able to negotiate a one-time settlement with your creditors. “Let's say you owe $2,000, and the credit card company is willing to take $1,000,” says Wehr. One caveat to this solution is that you'll be taxed on the money that was forgiven, but “the taxes on that debt forgiveness are still less than the actual debt,” Wehr says.

Card issuers also have hardship programs for customers experiencing difficulties paying their bills, Wehr adds. You’ll have to contact them and explain your hardship, as well as your income constraints and expenses. If the first person you speak with can’t help you, don’t be afraid to hang up and call back at a different time to see if you get a better response.

6. Consider consolidating your debt.
If your credit card issuers won’t negotiate with you, you may be able to find a debt consolidation loan that will give you a lower interest rate and save you money on payments, particularly if you have a high credit score. However, be careful that you don’t run up your credit cards again, Christensen advises.

7. Weigh other options if you can’t pay.
You may look at your finances and realize that paying your debts is impossible.

You can simply refuse to make payments and let the creditors sue you. If you have no assets and no income, there’s nothing anyone can take from you, says Leslie H. Tayne, founder of Tayne Law Group, a debt relief law firm based in New York. You’re basically considered judgment-proof, meaning a judgment against you could never be enforced.

Bankruptcy is another option that can not only leave you debt-free, but it also can lift a stressful burden off your shoulders, says Steve Rhode, author of “Eliminate Your Debt Like a Pro.” “There's an emotional toll to constantly having to look over your shoulder or dealing with yet another collector.”

Being in debt is never easy, and if you’re disabled, it can seem like an insurmountable mountain to climb. However, facing your debt and deciding to either come up with a repayment plan that is realistic or accepting that you can’t pay it at all can relieve the stress of living in limbo.

“When we run into a difficult situation you've got two choices. You can either turn around and fix the past or you can face the future,” Rhode says.

See related: 7 debts you may not have to pay, Living on disability with $8,000 in card debt


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Updated: 11-18-2017