Are You Uncollectible?

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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 to know 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:

  • You have limited income that only comes from specific sources;

  • You have limited assets and/or savings;

  • You don’t have any money left over after you pay for housing, food, and other necessities.

Sources of Income that Can’t Be Garnished

To be uncollectible, your income can only come from one or more of these specific sources:

  • Social Security Administration (SSA) benefits

  • Supplemental Security Income (SSI) payments

  • Department of Mental Health Family Support Subsidies

  • 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)

  • Veterans Affairs (VA) benefits

  • Railroad Retirement benefits

  • Black Lung benefits

  • Unemployment compensation benefits

  • Worker’s Compensation benefits

  • Student loans, grants, or work assistance

  • Payments or distributions from an Individual Retirement Account (IRA) annuity

  • Income benefits under the Michigan Civil Service Act

  • Private health or life insurance

  • Disability insurance due to injury or sickness of any insured person

  • Home Heating Credit

What Assets Can I Keep?

To be uncollectible, your only valuable assets may be:

  • A vehicle or household items worth less than $1,000 each

  • Certain personal articles

  • A bank account with funds only from the sources listed above

And, 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 Can I Do If I’m Uncollectible?

Your creditor can still sue you to try to collect the debt if you’re uncollectible. But if a creditor gets a judgment against you, the creditor has very few options to collect the debt. 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 may get proceeds from the sale of the home to pay the debt.

Get a Charge-Off

You can send a letter to your creditors explaining you are uncollectible and asking for a “charge-off” of the account as a bad debt. This is 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 goes away. You still owe the debt. Having a charge-off on your credit report may damage your credit score.

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. This is an example of a letter to send creditors to ask them to stop contacting you: Letter to Creditors - Stop Contacting Me.

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 sue you to try to get money from 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. To learn about garnishments, read the article An Overview of Garnishments.