What Do I Do About My Disabled Family Member’s Debt?

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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. 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.

Image: oneinchpunch

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Obama Administration Reaches out to Americans with Disabilities and Student Loans

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The Obama administration recently announced a new plan to ensure that permanently disabled Americans with outstanding federal student loans are able to easily apply for student loan discharge.

The process of applying for loan discharge due to permanent disability has been available in its current form since 2012, but only a small percentage of eligible individuals have actually applied. The new initiative set forth by the Department of Education will actively identify and reach out to individuals who are eligible for Total and Permanent Disability (TPD) loan discharge, to let them know about this option and help guide them through the necessary steps. Letters containing this information will be sent out over the next several months to eligible individuals, and follow-up letters will be sent after 120 days if no response is received.

However, if you do not receive a letter from the Department of Education but believe you may be eligible for TPD loan discharge, you can apply on your own by using the online form found here. If you’d prefer, you can also request that a paper version of the application be sent to you by calling (888) 303-7818 (seven days a week between 8am and 8pm Eastern Time), or emailing DisabilityInformation@Nelnet.net.

You must include supporting documentation along with your application. This documentation must consist of one of the following:

  • If you are currently receiving either Social Security Disability Insurance or Supplemental Security Income benefits, you can submit documentation of the award for these benefits.
  • If you are a veteran and your disability is a result of your service in the U.S. military, you can submit documentation from the Department of Veterans Affairs stating that your disability prevents you from being gainfully employed.
  • If you have neither of the above types of documentation, you can obtain documentation from a certified physician stating that you have a permanent disability that prevents you from being gainfully employed.

The application and supporting documentation should be mailed to:

U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130

The Department of Education estimates that most applications will be processed within 30 days. While your application is under consideration, your obligation to repay your student loans will be suspended.

The Obama administration is aiming to reach as many eligible Americans as possible, so if you know someone who might qualify for TPD loan discharge, please forward this information to them. More information about the TPD loan discharge application process is available here.

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