Credit Scores and Reports

Social Security benefits protected from garnishment


As long as your benefits are direct deposited to your bank, creditors can’t take them

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QuestionDear Sally,
I’m a 68-year-old disabled senior with $28,000 in credit card debt.

I’ve contacted different credit counseling and consolidation companies, and I’m not liking what they tell me. I’ve contacted HELPS, the nonprofit law firm. They said my Social Security benefits and pension plan are protected from debt collectors, and I can stop paying my cards. They will send cease-and-desist letters when collections start calling. Is this legitimate? What happens a few years down the road – will credit card companies still come after me? Right now, I barely have money left over for food and medical visits. I’m also disabled after a heart attack, bypass and arthritis.

Please advise me. My house is paid for and my husband divorced me after the heart attack. – Patricia


Dear Patricia,
Yes, what the nonprofit law firm is telling you is legitimate. Credit card companies and most other creditors cannot garnish your Social Security benefits and certain other benefits. You are what is called “judgment proof.” In other words, the credit card companies have no way of collecting from you right now.

As long as you have protected benefits directly deposited to your bank account, your creditors cannot take them. Thanks to federal regulations enacted in 2011, your bank is responsible for tagging electronically deposited benefit payments and keeping them safe from freezing or garnishment.

In your case, creditors can’t take your benefits, which you need to pay for your basic living expenses. Don’t worry – the banks will be OK. This happens all the time. It’s better for them to know the situation than for them to keep spending money trying to collect from you.

Stopping payments on your credit cards will cause a few things to happen. No. 1, the companies will step up their efforts to get your attention. Either you or HELPS can send letters telling them that you are judgment proof and to not call or otherwise harass you.

When you stop making payments, your credit history is affected and your credit score will plummet. This may not be a concern for you at this point, because you won’t be applying for a mortgage or other credit anyway. You won’t be able to make up any cash shortfalls from now on by using credit cards. That’s just as well.

The only catch in this plan is that you do have 100 percent equity in a house. The credit card companies won’t kick you out of your house. However, it is possible they could put a lien on it. The amount you owe will grow, with interest and fees, so if they place a lien on your house, they could get substantially more than the $28,000. However, in the meantime you can live in your house.

There is one alternative you should consider before you stop paying your credit card bills. You could apply for a reverse mortgage. To get a reverse mortgage, you don’t need a source of income or good credit. In fact, at age 68, with a paid-for house, you may be an ideal candidate for taking out a reverse mortgage. You could get a lump-sum payment to cover all your outstanding bills, and a monthly payment that helps you pay monthly expenses. A little more money every month may lower your stress levels and help you feel better, too. With a reverse mortgage, you still own the house, and you can live in it as long as you want.

I’m assuming the nonprofit law firm did not advise bankruptcy because you are basically judgment proof already. They’re right. Bankruptcy may be a good idea if you have assets to protect, or if there’s no other way to keep you from being harassed. There’s no point in paying the fees and going to all the trouble if that’s not the case, however.

If you’re not sure which solution is best for you, I recommend talking to someone at a credit nonprofit 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:Judgment-proof debtors have imperfect shield


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