Parent's nursing home costs take priority over 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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Dear To Her Credit,
My retired father who is now in a nursing home has outstanding debt on his credit cards, which were being paid with his Social Security checks. Now a portion of that check has to be used to pay for his nursing home stay and what's left is not enough to cover the credit card payments. What happens now? -- Silvia


Dear Silvia,
Your father's continued care at the nursing home takes top priority. If there's not enough money left over after nursing home expenses to make his credit card payments, and your father has no other assets or sources of income, the credit card bills may not get paid. It happens all the time.

The credit card company cannot collect money your father doesn't have. At this point in his life, he may be what is called "judgment proof" -- meaning that if a creditor were to pursue him and get a judgment against him, they would get nothing.

You don't need to go through the cost and trouble of bankruptcy if your father has no assets. The debt is just a number on the statement. The bank can't collect.

If your father has assets, such as a house or savings, that's a different story. You or another person with power of attorney for your father must act promptly, or the problem will only get worse. If you pay less than the minimum amount due, first he'll get hit with late fees. If the account goes delinquent by more than 60 days, high penalty rates could be imposed. The balance will rise quickly. It could double or triple in a short period of time.

By the time the credit card company gets around to taking serious collection action, your father could owe a huge debt. They're not likely to force a sale of a house, but when it comes time to sell, you could discover the bank has placed a lien on it. The bank and any other creditors stand in line to get their share of the proceeds from the sale. The money is distributed according to state law.

To avoid this scenario, the person with power of attorney for your father should try to settle the debts with the credit card company. The sooner this process is started, the better.

Don't worry about the credit card company garnishing your father's Social Security payments. If there's enough money after your father's living expenses to pay something to the credit card companies, that's great. However, Social Security payments are specifically exempt from being seized by creditors.

Since 2011, banks have been required to identify exempt direct deposit federal payments with an electronic "tag" and protect them from being frozen or garnished. They must exempt all tagged deposits made during the two months before the receipt of any garnishment order. Before the law change, the consumer had to show which money in a bank account was safe from garnishment. You can imagine how difficult that was! Now, the burden of identifying and segregating payments falls on the bank.

Another problem when Social Security is used to support someone in a nursing home arises when the person's spouse is dependent on that Social Security check. If your father is married, it's important to make sure that enough money from his Social Security check is saved out to support his wife. Medicaid rules provide for minimum monthly maintenance needs allowance for situations such as this one. There is a set amount of money set aside for the remaining spouse, which varies by state. Effective July 2014, the maximum monthly maintenance allowance is $2,931, and the minimum is $1,966.

It's always hard to take care of a parent's finances, especially when there aren't enough finances to go around. Knowing the rules and how they apply to his situation should help. Best of luck to you as you take care of your father in this difficult time.

See related: An elderly couple's options for dealing with debt, How wage garnishment works

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Updated: 01-18-2018