When credit card balances go unpaid, most creditors don't just shrug and walk away — they take more serious action.
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For many retirees, the golden years come with a new kind of budgeting challenge: fixed incomes. Even in a normal economy, Social Security checks, pensions and retirement savings may be stretched to cover housing costs, medical bills and everyday expenses, and all of those costs are rising in today's inflationary landscape. Add in the high credit card interest rates we're currently facing — which are hovering above 22% on average — and it's easy to see how some retirees end up carrying credit card balances they can't keep up with.
When those credit card balances go unpaid, though, the creditors who are owed money don't simply shrug and walk away from the growing balances. Late fees build, interest compounds at a daily pace, and eventually, those delinquent credit card accounts may get sent to collections or charged off. For some retirees, the situation escalates further, eventually resulting in the creditor or debt collector filing a lawsuit, and ultimately ending with a hearing in a courtroom.
That prospect can be frightening, especially for those on fixed incomes, yet many assume their age or income source shields them from legal action. Is that actually the case, though? Or can creditors sue retirees over their unpaid credit card debt? That's what we'll analyze below.
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Can creditors sue retirees for unpaid credit card debt?
The short answer to that question is yes, retirees can be sued over their unpaid credit card debt. Creditors have the legal right to sue borrowers of any age — including retirees — over unpaid credit card balances. If a lender or debt collector decides to pursue legal action and wins a judgment, they may have several avenues to attempt to collect the money they're owed.
However, certain types of income and assets are subject to strong legal protections and this is particularly true for Social Security benefits. Under federal law, Social Security payments are generally exempt from garnishment by most creditors, including credit card companies. That means creditors and debt collectors typically can't directly take your Social Security income to satisfy an unpaid credit card debt.
That said, there are a few important caveats to those protections. Here's what they are:
- Bank accounts can get tricky. If your Social Security benefits are deposited into a bank account and mixed with other funds, a creditor may freeze the account if they win a judgment. Federal rules usually protect two months' worth of Social Security deposits from garnishment, but sorting that out can cause serious short-term disruptions.
- Other income may not be protected. Pensions, part-time wages, rental income or investment returns may be fair game for garnishment, depending on state law.
- Property liens are possible. In some cases, a creditor can place a lien on certain property (like a home) to secure the debt, though actually forcing a sale of that property is rare in these cases.
It's also worth noting that the statute of limitations on credit card debt varies by state, but typically ranges from three to 10 years. If that time has passed, creditors may not be able to successfully sue, though they can still attempt to collect. So, retirees who are facing this issue or find themselves in a similar situation should check their state's laws or speak with an attorney to understand their protections.
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What options do retirees have if they're being sued over credit card debt?
If you're facing a debt-related lawsuit, ignoring it is the worst possible strategy. First, verify that the debt is actually yours and that the amount is correct. It's not uncommon for these types of lawsuits to include incorrect amounts or even debts that have passed the statute of limitations.
If the debt is valid, you may want to consider negotiating a settlement before going to court. Creditors often accept less than the full amount owed because collecting from retirees with protected income is difficult. You might get a creditor to agree to settle for 50% to 70% of the balance, for example, but you'll typically need to pay the agreed amount as a lump sum in return.
Bankruptcy is another option to consider, though it's a serious decision with long-term consequences. Many retirees successfully file for bankruptcy without losing their homes or retirement accounts due to exemption laws. Working with a credit counselor may also be worth weighing. A credit counselor can help you understand your options and potentially set up a debt management plan that lowers your interest rates and fees while streamlining the repayment process.
Whatever strategy you opt for, though, responding to the lawsuit and appearing in court is crucial. If the court enters a default judgment because you didn't respond to the lawsuit, you lose any opportunity to negotiate favorable terms.
The bottom line
Retirees aren't immune to lawsuits over unpaid credit card debt. Creditors can and sometimes do sue, and a judgment can lead to garnishments, liens or other collection efforts. However, many retirement income sources — especially Social Security — are shielded from most creditors, and there are multiple ways to challenge or settle debts before they escalate.
If you or someone you know is a retiree facing legal action over credit card debt, don't panic and don't ignore the paperwork. Respond to the lawsuit, understand your legal protections and consider options like debt settlement or your other debt relief program options to regain control. In some cases, retirees may be effectively judgment-proof, but asserting those protections often requires being proactive about the issue before it can compound.
Edited by Matt Richardson
