Will Creditors Forgive my Debt if I'm Seriously Ill?
By Erica Sandberg
April 9, 2013
My husband and I have been trying to pay off about $15,000 in credit card debt for years now. We no longer use cards and haven't for years, but mostly have only been able to make minimum monthly payments. The debt is spread over two Citibank cards and one Chase card. For the past seven months, I have been undergoing treatment for cancer and have been unable to work. I can't say I am unemployed, because my employer is allowing me to return to work once I can. My husband is self-employed in the construction business, so income is not predictable from month to month. Also, he has no health insurance.
Is there any type of scenario where credit card companies will forgive the rest of the debt owed? I feel like we have probably paid well over the original amount of debt we incurred, but the balances have not changed that much due to interest and the fact that we're able to make only minimum monthly payments. We need some help and relief from this burden. Any suggestions? — Leissa
My heart goes out to you and your family. Contending with such a serious illness is hard enough on its own, but when painful financial issues are added to the situation, everything worsens. Therefore, maintain perspective and adopt a pragmatic attitude about your financial dealings. Stress will only hurt your physical self, and that's the last thing you need.
You ask about debt forgiveness and while it's not likely, there is no harm in trying. While you may have repaid the actual amount that you charged long ago, a credit issuer typically sticks to the contract. When you opened the accounts, you agreed to either send the exact amount you borrowed by the due date (and avoid any finance charges) or pay incrementally (where interest would acccrue). However, appeal to your credit issuers anyway and ask if you can get a break based on your circumstances.
If your creditors consent, you'll be absolved of the remaining balances. Your tax bill may increase, though, because the Internal Revenue Service typically considers more than $600 worth of canceled debt as income.
What if they deny your request? Consider these options, and choose the most sensible one:
- Continue to send what you can afford. Of course you can keep on struggling to meet the terms of the contract. If your interest rates are high — say, 29 percent — it will take about 30 years to be in the clear. That's way too long, so ask if for a reduced interest rate. If your request is granted and your APR is dropped to 10 percent, you'll be looking at a 26-year repayment time-frame (and much smaller minimum payments). Not great, but better.
- Ask your credit card issuer if it has a hardship program. While getting your issuer to completely forgive your debts may be a long shot, some issuers offer hardship programs for customers who are having difficulties. Depending on your issuer, it might temporarily lower your interest rate or decrease your minimum monthly payment (although that would just cause your debt to drag on longer). Call up your issuer and see what options are available.
- Use a credit counseling agency's debt management plan. These non-profit organizations will arrange a plan where you pay through them — and the creditors may reduce or even eliminate interest charges while you repay. To be eligible, you must have enough income to meet your necessary expenses. Also, your debt payment might be higher because the balances must typically be repaid within five years.
- Pay your debts using a Chapter 13 bankruptcy. This type of bankruptcy lets qualifying filers bundle a variety of debts and pay through the courts. It's a five-year maximum plan and you'd have to earn enough to support your current bills and the payments. Your credit will also take a hit. However, unsecured debts remaining after the bankruptcy has been completed will be forgiven, so you could come out ahead — even with the trustee fees that are added to manage it all.
- Discharge your debts with a Chapter 7 bankruptcy. You may also be able to file for Chapter 7 bankruptcy and not pay another penny to those you owe. If you have assets that can be claimed by the creditors, those may be at risk. Plus, your credit rating will tank. Still, the last line of your letter asks for “relief from this burden,” and that's precisely what this type of bankruptcy can provide.
Again, don't waste your worries on money matters. Just do your best and take a businesslike approach. Save all emotions for your loved ones and the bulk of your energy into getting well.
Got a question for Erica? Send her an email.