Mom has Alzheimer's and $20,000 in card debt

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question Dear Sally,
My mother has Alzheimer's disease and her only source of income is Social Security.

She has several credit and department store cards, with a total debt of about $20,000. All her Social Security benefits go to pay for her care and basic living expenses. My brother thought we should stop paying on her credit cards and eventually settle for less than she owed, but in my opinion, he really made a mistake. With late fees and higher interest rates, the balance just keeps getting higher.

We tried to file for Chapter 7 bankruptcy on her behalf, but the counselors said that since mom owns her home, the best thing for her would be a reverse mortgage. So far, no one will give her a reverse mortgage because of her credit score. What can we do?  -- Sandra


Dear Sandra,
I agree with your counselors that bankruptcy is not the best solution to a $20,000 debt at this point in your mom's life. It's too expensive in relation to the size of the debt, and it isn't necessary. Depending on the state she lives in and other factors, including the equity in her house, bankruptcy may not even help much.

I don't think a reverse mortgage is the answer either, however. A reverse mortgage can be a great idea if someone expects to live for a substantial number of years and needs to generate a monthly cash flow. On the other hand, a reverse mortgage costs money to set up. If your mother's life expectancy is diminished by Alzheimer's disease, the set-up costs may outweigh any temporary benefits of taking cash from the house with a reverse mortgage.

Your mom's credit score would not ordinarily keep her from getting a reverse mortgage, because the bank doesn't need to count on her making payments. (She would need to show that she can keep up the insurance and property taxes, thanks to 2013 changes in the rules for reverse mortgages.) However, your mother may not qualify for a reverse mortgage if it appears she will need to leave her house soon to receive more care. If she has already moved out of the house, she cannot take out a reverse mortgage.

Another reason she may not qualify for a reverse mortgage may be if she has too much debt on the home already. The rules stipulate the percentage of the home's value that may be mortgaged, based on the person's age at the time of the loan.

The credit card company's options for collecting on your mom's debt are limited right now. If she has no income other than Social Security benefits and legal action is taken to try to collect, they cannot seize her Social Security benefits. Even if they were to bring suit, she is judgment-proof. When she passes away and the estate is settled, any outstanding creditors will be paid from the proceeds of the house and any other assets.

If you would rather pay the debt now so it doesn't continue to accrue late fees and high interest charges, one option is to sell her house, now or when she needs to move into a facility. That may be hard to do if your mom wanted to keep the home in the family, or if you hoped to inherit it. Or you can call the card issuers and try to settle for less than what is owed, now that the accounts are seriously delinquent. You may need to get power of attorney -- if you haven't already -- in order to negotiate on behalf of your mom, however, as issuers may balk at negotiating debt settlement with someone other than the account holder.

Taking care of an aging parent's finances can be difficult, especially if two or more adult children are trying to agree on what to do. It's further complicated if the parent is losing mental capacity, but is still aware of what is going on around them. Don't rush to make decisions for your mother, but do the best you can and don't look back. Best of luck as you and your brother take care of your mom during this difficult time of her life.

See related: Do you have what it takes for DIY debt settlement?

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Updated: 01-21-2018