What You Should Know about Disability and Debt

Debt collection calls when you’re trying to “make it” on disability benefits can feel like insult added to injury. And yes, we know the instinct to meet your obligations is strong. That’s what makes you a driven person. However, if you can’t pay and struggling to make ends meet, you might be happy to learn disability payments are shielded from most debt. We say “most debt” because Social Security disability insurance (SSDI) or individual disability income insurance can be taken to satisfy certain types of obligations.

Here’s what you should know about disability and debt.

There Are Protections

When it comes to debt collection, disability income enjoys special status. It is not considered ordinary income, so SSDI and Supplemental Security Income (SSI) payments are granted protections from debt collectors.

Federal banking regulations automatically protect twice the amount of federal benefits—including Social Security—when the money is electronically deposited into a checking account.

Further, some types of debts can be forgiven altogether if you become disabled. Social Security benefits are also given special treatment in bankruptcy cases.

Taxes and Child Support Are Exempt—Unless…

Now, with that said, SSDI can be taken to satisfy past due or current child support. The federal government can also garnish your SSDI check to collect unpaid back taxes and defaulted student loans.

With that said, anyone receiving disability income will usually qualify for “currently not collectable” status with the IRS. This means you won’t have to pay federal income taxes. Further, state tax collectors can’t legally garnish Social Security income.

You can also request a modification to your child support order to protect your SSDI in child support cases. Request Social Security dependent benefits for your child(ren) to make up for it.

Do You Need Bankruptcy Protection?

Given your disability income is already largely protected, there’s no real need to file for bankruptcy protection. If you’re being overwhelmed with collection calls and you’re looking at bankruptcy as a way to stop them, there is a much better and less expensive method.

You can send cease and desist letters to collectors under the stipulations of the Fair Debt Collection Practices Act. These must be delivered in writing and each creditor must get a separate letter. Once they are in receipt of this document, any subsequent calls they make to you in an effort to collect the debt will be in violation of federal law.

Protecting Side Money

Whatever the amount of assistance you receive, twice that figure is protected from garnishment. So, if your disability benefit totals $1,500 monthly, $3,000 of the account balance is protected—as long as that $1,500 is deposited electronically.

If you have yet to set your disability payments to be deposited directly, do so right away. An additional $945 a month is protected as well. In other words, if your side money is protected too, as long as these amounts aren’t exceeded.

You could also form a Limited Liability Corporation (LLC) to protect your income. LLCs are considered separate legal entities. If you have personal debt, judgments against you cannot be enforced against your LLC.

Debt Relief Options, When You Need ‘Em

If you’re overwhelmed with debt and racked by guilt because your disability status won’t let you afford to pay it, consulting a debt relief firm like Freedom Debt Relief might help you change your mind. All of the best debt relief firms will consider your situation before offering you a choice of options.

After an honest review, the trustworthy ones will reiterate what you’ve read here. To make sure you’re consulting a truthful company, look for background information like these Freedom Debt Relief reviews. There you will find stories from people just like you who sought relief from crippling debt. Suffering a disability is bad enough, but also being forced to bear unmanageable debt really is adding insult to injury.