Editorial Policy

Will credit cards disqualify you from Section 8?

Erica Sandberg

January 14, 2014

QDear Erica,

I have been all over the Internet looking for a clear answer to these questions, but so far no luck. Hopefully, this will be my last stop. I have a close friend in need of answers. Can a person receiving Supplemental Security Income (SSI) file bankruptcy? Are credit cards considered income? That being asked, does she have to report credit cards to Section 8/subsidized housing? Thanks for your time. — Amber

AHi Amber,

Because you've scoured the Internet and still haven't found the answers, I'll get right to the point:

  1. Yes, a person receiving SSI may use the bankruptcy protection process. It just depends on which kind of bankruptcy.
  2. No, a line of credit is never considered income. It's a loan, not earnings.
  3. No, a person's credit cards are not an eligibility factor for Section 8 housing assistance. Assets and income are, though.

Now for the details.

There are a few different types of bankruptcy in the United States, but there are only two that consumers use in vast numbers. Chapter 7 is the most common, which helps qualified filers escape paying their unsecured debts. There is an income stipulation; if you earn too much, you won't qualify. However,  that concerns the cash you earn from a job — not what you receive from the government as financial aid.Ask Erica

The other type of bankruptcy that Americans often turn to for relief is Chapter 13, which allows filers to pay at least a portion of their debts through the court. Your friend would need a real job to qualify for Chapter 13, and SSI is not it. Such a differentiation makes sense, as you'd be promising to creditors that you can afford to send regular (though often smaller than the original) payments for all the included accounts. Without an income, that would be impossible.

If your friend has no income beyond SSI (and it looks like she doesn't, based on your letter), she would be more likely to qualify for Chapter 7. However, there will be fees and a lot of legal complexities involved, so, when you're dealing with bankruptcy, it's best to consult an attorney.

It seems like your friend's resources are limited, so a good place to start is LawHelp.org, which helps those with low incomes find free legal aid. They may be able to connect you with an attorney who is willing to work pro bono or classes in your area for those who are considering bankruptcy. Also, do an Internet search for bankruptcy clinics in your area. Such clinics are often staffed by law students and paralegals and may offer free classes to help you through the process.

Now, on to your questions about Section 8. Section 8 housing typically refers to the voucher system, where a substantial portion of a person's monthly rent is picked up by the government. As with any federal and state welfare program, there is a litany of requirements to qualify. Interestingly, the amount you currently owe is not one of them. Neither is the debt you can get into with current or future credit cards.

But let's say you have bad credit because of all that plastic: Would delinquent or high debt, collection accounts and judgments prevent you from qualifying for Section 8 housing? Well, it doesn't affect your being able to get the voucher, but the landlord may balk. Even one who accepts Section 8 vouchers has the right to pull a prospective tenant's credit report. If they see a wild tangle of problems on it, they can decline you. While the bulk of the rent may be covered by the government, the portion you are responsible for may not be so easy to pay if other creditors are also demanding payment.

Also tell your friend that many accredited nonprofit credit counseling agencies are HUD-certified. A credit counselor can help her organize her finances, explain what she can do about her credit accounts and then provide specific information about a wide variety of existing housing programs that are currently available. An agency that is a member of either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agenciesis a good place to start.

Got a question for Erica? Send her an email.