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My mom is on Medi-CAL (What they call Medicaid in CA) and is in a SNF. I do not dare do anything to disrupt her care or coverage. However I have been paying down her 5 credit cards myself (Still $35,000+ to go) since her dx of dementia 4 years ago. She was accepted for Medi-CAL coverage and admitted to a SNF one year ago and I am still paying on her debts. (Most of her debt were for assisted living rent that she could no longer afford with just her SS check.) I saw a post on this site mention a 1099-C form. Apparently it's a tax form that credit card companies will send to the IRS if I write "the letter" informing them that mom is in a SNF and can no longer pay on those debts. It said the 1099-C debt amounts will be considered income and can interfere with her Medi-CAL eligibility! That alone would make me continue attempting to pay the $1,000 month due even though I've exhausted all savings and just don't have it. Does anyone have any experience/advice re how I might finally get rid of her debt and not be in danger of upsetting her Medi-CAL coverage & care? Once you're in the system as a red flag I know how difficult it can be to get things straightened out and my mom's advancing dementia requires consistent care 24/7. Thank you for any thoughts you may be able to share on this! ...and all the best to my fellow caregivers out there, fighting the good fight!

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Dear Spent Child,
I do not have all the answers for you unfortunately but will just share that when I called MediCAL here in CA, they advised me that phantom income is only taken into account for those not yet receiving Medicare. Assuming your mom is over 65, on Medicare and you can show that she has no more that $2,000 liquid assets (barring a few exceptions like burial plots, etc.) then the phantom income is not counted as income when one is applying for MediCAL. I confirmed this several times as it applies to credit card debt too which was my particular concern. The only exception is if she owes a "super creditor" (I.e, the IRS, gov't entity) in which case her SSI could be garnished and an Medicaid application could be adversely affected. Hope this is at least a bit helpful. If you call Medicaid back, perhaps ask re the age of the applicant relative to phantom income. Best of luck to you, warrior child! Bless your caregiving heart!❤️
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Hi. I am not sure how to ask a question here, so I am just going to share as someone answering. I hope you don't mind. I have pretty much the same issue but mine is related to a FORECLOSURE on my mother's house. I am her DPOA. After 2 years, I ran out of money to pay the 6k/mo. private home care costs plus the mortgage and housing costs. She only has $2100 per month and in Missouri the limit is 2k. Medicaid denied my applications for her 3x (never giving me a reason but always requesting additional documents). Since she was living in the house, it wasn't the house at that time.

After being denied a medicaid bed because she was still too physically active, I put her in a private pay assisted living memory care where I have used her 2k to offset her care costs of 6k/mo., reducing my outlay to 4k per month. But, after 3 years, I am basically cash broke. My second child is going to college in August and we have tuition to pay then and again in January totalling almost 50k.

I just found out (because my brother didn't see a foreclosure notice and he is local; I am not), that the bank foreclosed late 2017 and the house sold at an auction on 02/22/18.

Here is my question (dreading the answer): My Dad paid 131k for it (this is still listed as the Zillow estimated market value!) in 2006. A realtor, before we stopped paying the mortgage, eyeballed it as having a FMV (would sell at 90k quickly), but that was before she brought her own building manager over who told her that the house needed at least 25k due to water damage in the basement and a leak in the main room ceiling etc. He said at that time he wouldn't pay more than 50k for the house. Interestingly enough, it sold for 57k.

My Mom owed 93k on the balance of the mortgage.

Medicaid told me this morning (the nicest lady I have ever spoken to btw) that she didn't know the answer to my question about whether my mom would be ineligible for Medicaid if I apply (this week!) based on foreclosure of a house that was upside down on the mortgage. She said she had never been asked that question.

I applied for free legal aid today for my Mom, but I would like to hear the thoughts of this forum.

If the house appraised at 90k FMV, and sold for 57k, will the IRS (and thus Medicaid) treat the difference as phantom income? (33k?) If so, this forum thread tells me how to deal with that re: the IRS, but what about MEDICAID? Do I have to actually pay ANOTHER 33k on her care post 02/22/18 before Medicaid will treat that phantom income as having been paid on her care? Its phantom income. It doesn't exist. So how can I use that for her care even if the IRS forgives the tax debt? Will she remain ineligible until I do this? What if she had no child who was covering her costs? They can't make her pay something she doesn't have and hold Medicaid certification hostage can they?
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Letter is nice. I’d put in a line or so that moms only income is SSA & as such is federally protected from lien, garnish, by collections unless creditor is a “super creditor” like IRS, the feds or the state. Put in the specific section # as to this.

About the postal box, to me this is the first step & needs to be done ASAP. Now you will need to actually rent it as they all now require in person ID to do as per Homeland Security regs. It’s technically your box but with mom as the secondary but all the mail that comes is mom related. Keeps your life / her debts from commingling quite so much. USPO & some UPS stores have these. BUT what may be better is a box at a mailing service. Ups & indep mail services have street address with a PMB #; Some creditors & health providers require a physical address rather than just POB, so ups or mail service can have this while uspo does not. If there’s a college or U by you, there will be one and more than likely an independent mailing service, who will have more stable staff who get to know you and will call or text you when box is full or something interesting comes in. I’d suggest you get the box done ASAP, so the next minimum payment (nov) you make on moms debt, you put in the change of address. So like in Jan ‘18, you can get all the notices out to all creditors about the new playbook and start 2018 anew.

Now even doing all this wont stop the botton-feeder secondary debt collections from hounding mom. As the debt will be sold by the OC routinely. But nothing 2ndary can do other than be a butt rash. Lil’ factoid..... only the OC can issue a 1099-c although I’ve heard that the secondary collections will use this as a threat. If mom should get letters from them, do a new post as folks will have suggestions as to how to deal with these.

What you are going through, most of us on this site has had to deal with & it’s been incident based - usual drama is they fell, both a hip, not going home ever again - crisis management. It’s overwhelming but gets better. If your albatross is friendly, it’s easier to cope... my mom was, but my mil was a most difficult albatross.
One of the experts on AC, Gabriel Heiser, has a book on understanding the maze that is Medicaid & mMedicare. Well worth getting.
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Again, I cannot thank you enough for taking the time to share your considerable knowledge and insight on this, igloo! At the risk of imposing, I am tempted to run one more thing by you as you've been the most informed of all I've consulted including my own CPA! Another fine poster on this site shared a template for a letter I could safely send to the CC companies to inform them that mom in now deemed indigent and unable to pay her debt. If you have a moment, I'd greatly value your take on this before I have at it. I've copied and pasted that post below:

"The idea is to turn yourself into a wall. Never apologise, never explain (or not more than you absolutely have to). Compose a standard form letter, which you then customise, print and send to anyone submitting invoices, reminders, polite death threats, etc. along the lines of:

Dear Sir

Ref: [your mother's name and address, plus any relevant account number(s)].

Please be advised that as of [date], Mrs Bloggs' remaining assets and income will be sequestered in consequence of her permanent move into Medicaid-funded nursing care.

Please address any further correspondence to [Box No. (great idea from igloo!)]. I look forward to receiving your acknowledgment of this advisory notice by return.

Yours faithfully

Alice B Toklas, POA pp Mrs Bloggs."

(nice touch, Alice;)

Do you see any red lights in this letter that may come back to bite me if customized to each creditor and sent via your instructed method of using a P.O. Box & the Certified green signature card? Thank you for any thoughts you may have - they've been invaluable!

Oh, and it looks as if my albatross is at long last in danger of being tamed this week! Hallelujah! Thanks for asking. ;)
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Love - I’m of the same mindset & doing the 1040/982/2848 dance is well worth the time & costs. It’s done, legal, no more worries & with a bow on it.

Glad you mentioned the 2848, that lil’ missive has to be included in anything filed as a DPOA. 2848 Power of Attorney and Declaration of Representative. The 2848 is time limited - 3years- for even more fun! 

Not too sound harsh, but there is a high probability - as between now & April, 2019 is 19 months - that the elder in a NH will pass away. Whatever debts she has - like the 35k in CC- will die along with her. If she has no assets but only debts, there will be no need for probate, so you could pay for a batch of death certificates and certified mail with return card (green postcard) to each creditor and case closed. Maybe for a cost of $ 15-20 per creditor. 

I do see a red flag for your situation.... pls pls make sure that by your paying moms debt that you are NOT getting the debt to become yours. CC issuers & those secondary debt collectors will try to weasel you onto & into this. 

So your albatross.....is it friendly?
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What wonderfully detailed and helpful information igloo572! Many thanks! You are clearly well informed re this so I thought I'd share what was told me in my conversation yesterday by a MediCAL rep and then a supervisor in my mom's district of coverage. They said that the rules change at age 65 when a 1099-C is reported by the IRS. They said that if one is under 65, on ACA insurance and/or Medicaid/CAL that it would indeed count as taxable income and be included in an eligibility request for application. BUT... according to the two I spoke with, once a person is 65+ and receiving Medicare benefits, it is not considered taxable and becomes "ghost" (aka phantom) income, i.e., it's not taken into consideration for eligibility. Does this sound feasible to you?
All of that said, I a completely of the mind to expect the unexpected. So as the 1099-Cs come in I will absolutely get them to my CPA and have the 1040, 982 and IRS form 2848 done professionally. Any prep fee is a drop in the bucket by contrast to the albatross I've been shouldering. It's time. Again, much gratitude for your time and energy in this, igloo!
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When a debt is defaulted upon, any creditor owed more than $600.00 can issue an IRS 1099-C. It’s done as standard practice by mortgage co and credit card issuers. The 1099-c will be for the debt PLUS whatever interest and fees tacked on to the point when the OC (original creditor) files the write-off.

So that 35k could easily morph into 38k... 40k or way way more. Personally to me, if that debt is all your moms, I would not be paying it off but let it default. If paying off could adversely affect your own future finances, I flat wouldn’t. The 1099s can be dealt with...... but first a bit of background....

For those on Medicaid or other means tested programs, 1099c poses two different but intertwined problems:
- it is viewed as taxable income & is reported to the IRS. If your state or means tested program (like Medicaid or SNAP) does IRS match up, the $$ surfaces and will take mom over the asset / income limit. Mom becomes ineligible for Medicaid. 
- & 
- since it’s taxable income AND if you do not deal with it, the IRS as a supercreditor can attach SS income to pay IRS for taxes owed. For those on NH Medicaid, this poses a problem as they are required by Medicaid to pay almost all monthly income (like SS) to the facility as copay or SOC (share of cost). If SOC is not paid, they can be disqualified from Medicaid.

So to get beyond all this, mom files taxes.
Mom (or you as her dpoa) get a tax pro to do her 1040 AND an IRS 982 (Reduction of Tax Attributes). The IRS 982 has its own form and a worksheet that if done right basically zeros out her taxes. There a lot of info on the web on 982 but most of it deals in detail with foreclosures, short sales and property costs; for the written off CC debt not so much info. To me, the 982 is not a DIY project, but you need a CPA or solid tax pro to tackle this. I’d guess around $300-400 to do the 2 plus the IRS form 2848 (power of atty / rep). Your moms debt exceed her income, she’s on Medicaid, doing the 982 is totally legit method to deal with all this. 

Also creditors may not file the 1099 for the year mom/you stop paying. They usually carry the debt for a period of time that could take it into the next tax year. So you could end up having the 1040/982 needed to be done 2 years. The 1099-c gets issued in Jan. based on the prior years tax status of the debt by the OC.

As it’s already Oct, 2017, if you were to stop paying moms debt now, it will probably not surface as a 1099 till Jan, 2019 for 2018 taxes and due to IRS by April, 2019. That’s a pretty long period of time till it would have to be dealt with. 
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The 1099-C is a form for cancellation of debt. When a debt is cancelled, the amount of the debt is treated as imputed income. Theoretically, that could be seen as $35,000 of income being distributed to your mother in the tax year of the cancellation. Theoretically, that could interfere with her Medicaid indigent status.

As a practical matter, though, there are exemption from the income inclusion on 1099-C. The IRS will not assess tax on this amount if it is shown that the person's debts exceed their assets. This is almost a certainty with your mother since she had to be shown to be indigent to get Medicaid to begin with. The sticking point is, I don't know if Medicaid treats that imputed income the same way. It's possible that the IRS could view your mother as insolvent and not assess income tax on the forgiven debt, but Medicaid may still see it as income. I don't know the answer to this, but I think you need to check with a lawyer or CPA who's versed in these issues to get an answer. That will certainly cost you a lot less than the $1,000/month you are paying to satisfy your mother's debt now. Good luck!
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