By June A. Schroeder, RN, CFP
I was recently asked, "Am I responsible for my parent's debt? What if, as a caregiver, I recently discovered that my father has several thousand of dollars of debt. Are these debts transferable?"
The answer is no!
This question often comes up in cases like this, but even if you have power of attorney, you are not liable for a parent's debt nor can these debts be transferred to you (unless you cosigned for them or are listed as a joint debtor).
However, depending on the situation, you might feel obligated to figure out a way to help a parent pay them. Both of you might have a moral code that dictates these bills must get paid somehow. There a few different factors that play into how this can be done.
What Kind of Debt Is It?
Credit card? Home improvements? Medical? Each might carry a different degree of obligation or urgency for repayment. It might be easier to deal with a credit card company in some instances than a local plumber who really needs the payment for survival. Furthermore, you might also feel differently about the timing of settling these two particular balances.
Where Did the Debt Come From?
It is important to consider the root source of these debts as well and ideally discuss these things before your parent becomes incapacitated or passes away. Confusion over payment options and slick salespeople can often complicate financial matters.
For example, is your parent putting clinic, hospital, or dental bills on a credit card instead of working out a payment plan with the actual care provider? These institutions usually have more favorable interest rates compared to credit card companies.
Is some of the debt stemming from automatic charges or subscriptions for products or services that are no longer needed or that can be eliminated or reduced? Are the payments being made on time or incurring additional late fees?
The few above questions cannot solve the issue of existing debts, but addressing these sources head on will help you and your family members reduce or eliminate future debts.
How to Reduce or Eliminate Debt
- Ask the creditor if the payments be lowered to better accommodate your loved one's income.
- If your parent is a homeowner with low or no mortgage debt, is a reverse mortgage a possibility?
- If there is confusion or cognitive impairment involved, take away the credit cards and notify creditors immediately. (This is one reason why we encourage everyone to appoint a financial power of attorney at any age!)
- Try writing a letter to the creditor stating that there are no assets available for repayment and requesting "debt forgiveness." (It is possible that the latter may work only after the parent qualifies for Medicaid.)
- Contact the Consumer Credit Counseling Service (CCCS) in your area for help with tips on the actual negotiations if you need help.
- If there are no assets to settle these debts, bankruptcy can be an option, but be sure to get an attorney to assist you with this process. There are many legal action or legal aid organizations across the country that give low or no cost assistance to those with low income and the elderly.
- If your parent is ill and dies before you get their affairs straightened out, pay off what you have funds for and then write the creditors with the news that they have passed and there are no more funds available for repayment. (When my mother passed away, we had more bills than assets and letters worked just fine. We never heard from the creditors again.
June Schroeder is a Certified Financial Planner (CFP) with Liberty Financial Group in Wisconsin, and she is also a registered nurse.