Q: After 30 years of epileptic seizures, my 45-year-old sister had brain surgery last July, but suffered a stroke during surgery, leaving her paralyzed on her right side and with mental limitations. She has been unable to work and is on disability. Paying all the medical bills is difficult enough but she also has $40,000 of credit card debt that she will be unable to pay. What do we do?
A: There are several considerations when trying to pay debts in the event of a disability, such as if the person has disability insurance, if the disability is temporary or permanent, if the debts are secured or unsecured, and if there’s a joint accountholder or co-signer on the debt. It also depends if the disabled person has a spouse and lives in a community property state. (There are nine community property states in the U.S., and in those states, the spouse can be liable for debts.)
As far as our commenter’s question goes, there are a few details that would make it easier to answer, like where their sister lives, if she has any assets or if she’s married. Still, we can talk generally about what people should know and ask about if a family member with outstanding debt becomes disabled. We asked Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, to explain some of the basics.
“If the disability is permanent, and the person does not have any assets, they could be what is known as ‘judgment-proof,'” Nitzsche wrote in an email. “This means that unsecured creditors really have no way of collecting against the person since they do not own property and do not collect a paycheck. Social Security and Disability income is not garnishable.”
When trying to figure out if you’re judgment-proof, the guidance of an attorney or credit counselor may help. Keep in mind that being judgment-proof doesn’t make the debt go away — you’ll want to communicate the situation to the creditor or a debt collector (in writing), but they still might try to sue over the unpaid debt and that account could still appear on the family member’s credit reports. Again, consulting a consumer attorney may be a good idea. Even if you’re not judgment-proof, you may be able to reduce the stress of dealing with your disabled family member’s debt. According to Nitzsche: “Explaining the disability alone will not change their collection efforts and activity, but it may give you leverage to settle the debt for less than is owed (if desired). … You or your family can write ‘cease and desist’ letters to the creditors (templates available online) to stop collection efforts. This will not stop legal action, such as a court summons, but will stop the calls if they are causing stress.”
Dealing with a disabled family member’s debt certainly isn’t easy, but there’s a good chance you may not have to pay for it.
“If the disabled person is unmarried and the unsecured debt is not co-signed, then no family members can be held liable,” Nitzche said.
The disabled person (or whoever has power of attorney) should review their credit reports regularly to make sure any agreements made with creditors result in those accounts being reported properly to the major credit bureaus. If you are somehow liable for a family member’s debt, be sure to keep an eye on your credit standing so you can understand how it’s affecting you. (You can get two free credit scores every two weeks on Credit.com.) And if have any questions about credit (or money, in general), share them with us in the comments, on Twitter (@CreditExperts) or on Facebook.