If you’re facing collection calls and garnishment for debts you can’t afford to pay, you might be uncollectible. It may give you peace of mind that you can keep your limited income for necessities.
How Do I Know if I'm Uncollectible?
You are “uncollectible” if all of these conditions apply to you :
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You have limited income that only comes from specific sources (see list below)
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You have limited assets and/or savings
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After you pay for housing, food, and other necessities you don’t have any money left over that could be garnished to pay your debts.
Sources of Income that Can't Be Garnished
To be uncollectible, your income must only come from one or more of these specific sources:
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Social Security Administration (SSA) benefits
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Supplemental Security Income (SSI) payments
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Department of Mental Health Family Support Subsidies
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State Public Assistance Benefit payments, such as General Assistance Benefits, Family Independence Program (FIP), Food Assistance Program (FAP), Electronic Benefits Transfer (EBT), State Disability Assistance (SDA)
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Veterans Affairs (VA) benefits
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Railroad Retirement benefits
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Black Lung benefits
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Unemployment compensation benefits
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Worker’s Compensation benefits
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Student loans, grants, or work assistance
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Payments or distributions from an Individual Retirement Account (IRA) annuity
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Income benefits under the Michigan Civil Service Act
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Private health or life insurance disability insurance due to injury or sickness of any insured person
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Home Heating Credit
What Assets Can I Keep?
To be uncollectible, your only valuable assets may be:
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A vehicle or household items worth less than $1,000 each
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A bank account with funds only from specific sources (listed above) that can’t be garnished
Also, your limited income must only be used to pay for housing, food, and other necessities (like medicine). You cannot have any money left after these expenses are paid.
What Should I Do If I'm Uncollectible?
Get a Charge-Off
If you have limited income, limited assets, and no left over money, you are uncollectible.
You can send a letter to your creditors explaining why you are uncollectible and asking for a “charge-off” of the account as a bad debt. Here’s an example of a letter you can send to creditors to let them know you are uncollectible: Letter to Creditors - I'm Uncollectible.
Getting a charge-off does not mean the debt is discharged. You still owe the debt, and having a charge-off on your credit report may significantly damage your credit score. Moreover, your creditor can still sue you to try to collect the debt.
Ask Your Creditors to Stop Contacting You
You can send your creditors who are debt collectors letters asking each to stop contacting you about the debt. Here’s an example of a letter to send your creditor asking them to stop contacting you: Letter to Creditors - Stop Contacting Me.
If you’re uncollectible and a creditor gets a judgment against you, the creditor will have very few options available.
A creditor could put a lien on your house if you own it. If you sell your home while the lien is in effect, your creditor will get proceeds from the sale of the home to repay the debt.
You Might Not Always Be Uncollectible
If your financial situation improves so that you’re no longer uncollectible, you should try to find a way to pay your debts. Remember, just because you are uncollectible doesn't mean your debt goes away.
If you find a job, inherit money, or win the lottery, your creditor might try to get money from you by suing you. If your creditor succeeds in getting a judgment against you, it will be able to garnish your accounts or income, or seize your assets. For more information about garnishments, please see the article An Overview of Garnishments.