Should my sister in law default on her credit card?

[Trifle]

Hello smart mustachians!  I am in need of counsel.

My sister in law (SIL) is 58 and lives in a nursing home in Wisconsin.  She is quadriplegic -- completely disabled physically, but mentally she is pretty much ok.  Her income consists of Social Security Disability payments (SSDI).  After spending down her assets she recently qualified for Medicaid.  She has basically nothing now, maybe $200 in her checking account.  The nursing home takes her monthly SSDI payment, and that amount combined with Medicaid is paying for her care. 

Here's the problem.  SIL has a credit card with a $6000 balance on it, which was incurred last year when her nursing home charged a monthly nursing home bill to her credit card. 

Since then SIL has been struggling to make the monthly minimum credit card payment.  My mother in law and other sister in law have started stepping in to make the minimum monthly payment for her.  The family is looking to me for advice, since I'm the most financially savvy one in the family.  But hell -- I have no experience defaulting on a debt.  The goal would be to make this debt go away in the least unpleasant way possible.  I feel a tiny bit sorry for the credit card company, but not that sorry. 

My first instinct is for everyone to just stop paying.  SIL is "sue proof" as far as I can see because she has no assets whatsoever, and no real income.  But if the family members stop paying I think the credit card company will send SIL to collections, which is unpleasant.  SIL has enough problems and I really don't want her to have to go through that. 

I haven't yet called the credit card company or taken any steps. 

So here are my questions:

1. Do you think that if I call the credit card company and explain the situation, there is even a snowball's chance in hell that they would believe me that she has no money and can't pay? 

2.  Is there any other way you can think of -- short of declaring bankruptcy -- to erase this debt and avoid SIL being sent to collection?

3.  I think that going forward SIL probably doesn't care if her "credit is ruined."  She doesn't plan on applying for any more credit cards.  But -- is there something I'm not thinking of?  Some reason she would need a decent credit score?  I think she will probably stay in this nursing home, but there is a slight chance that we may be trying to move her to a different facility, possibly an assisted living facility.  (MIL has some assets, and we are discussing whether MIL could possibly private-pay for SIL at a different facility, in which case she would come off Medicaid for a while.  I estimate there is only a 5-10% chance of them going down that path, but we're discussing it.)  Might SIL need a credit score to apply to an assisted living facility? 

4.  Is there something else I'm not thinking of here?  Any other options?

Thank you!!

   

[iluvzbeach]

As far as I know, her SSDI funds can’t be garnished by anyone other than the federal government, so there’s not much risk here for your SIL. I’d write a letter to the credit card company explaining her financial situation, health issues and the total lack of assets, asking that the debt be forgiven. Under no circumstance should anyone offer to go on a payment plan. They may or may not forgive the debt, but in either case I can’t see much benefit to filing for bankruptcy and if a lawsuit were to be filed against her, there are no funds to be awarded. I am not a lawyer, so take what I say with a grain of salt.

One other thought, is it possible, now that her Medicaid has been approved, that the care facility is being paid retroactively by Medicaid for that month’s care and they can refund your SIL’s credit card for the previous payment?

[Trifle]

Thanks so much for replying @iluvzbeach!  I agree that the only "risk" to SIL here is the unpleasantness of collection efforts, or a lawyer contacting her with lawsuit threats.  Not the end of the world, but we'd like to avoid it if possible.

Maybe the way to go is not a phone call to the credit card company, but a letter as you suggest?  I expect if I call they will put heavy pressure on us for someone to agree to a payment plan.  We won't do that. 

Thank you for your last comment!  It had not occurred to me to look into the exact timing of (a) the credit card payment to the nursing home, and (b) when SIL qualified for Medicaid.  I think you're right that Medicaid, once approved, pays retroactive to the application date.  I wonder if the nursing home could possibly have double dipped that month?

 

[hooplady]

My only comment is in reference to others stepping in to pay off this bill. I learned the hard way when helping a friend who had become disabled - a lot of programs will count something like this as "income" which may affect the disabled person's ability to qualify. You may think your are helping but it may backfire. Each state and program is different though.

[iluvzbeach]

@Trifele, I mentioned the letter because my stepmother found a sample letter (I’ll try to attach it here) when researching a debt situation she is dealing with related to my now-deceased father. We were just working on this yesterday, so the timing really is on point!

In my stepmom’s situation, she has just been sued by the credit card company but fortunately it’s a small amount and I think she’s just going to figure out a way to pay it. Her situation is much different from your SIL’s, nearly destitute but not quite.

[Trifle]

My only comment is in reference to others stepping in to pay off this bill. I learned the hard way when helping a friend who had become disabled - a lot of programs will count something like this as "income" which may affect the disabled person's ability to qualify. You may think your are helping but it may backfire. Each state and program is different though.

Ooh jeez @hooplady, I didn't even think of that.  I think the amount involved here is pretty low, maybe ~$100 a month, but we're talking Medicaid, so even that amount may impact something.  I'll look into that -- thank you!

[Trifle]

Thank you so much for the template letter @iluvzbeach!  That is really helpful. 

Right now I'm thinking I'll start off with a phone call to the credit card company get the exact name and contact info for the right person there, and then follow up with a letter using this template.  I'll also have to coordinate this with SIL so she knows not to answer phone calls or talk to the credit card company until it is hopefully settled somehow. 

SIL is ok mentally but I think she would be pretty easy to bully or scare, if the credit card company decided to take that approach.  :/   

[Finances_With_Purpose]

Did she agree?  Did she have the capacity to agree?  Or did they just push it for her/force her/force it themselves?  Are you sure you know the answer to that?

I'd figure that piece out first. 

If she didn't really agree, it's not an authorized charge and I would say so.  And inform them of nursing home's practices.  (Note that this is going to get back to nursing home and upset them.) 

Second, I would consider calling elder abuse authorities on this kind of crap.  They're taking advantage of people with impaired capacities who live with them - which is about as scummy as it gets, in my mind, at least.  (I'll leave others to comment more on that angle.) 

[SunnyDays]

What about a consumer proposal, where she agrees to pay a smaller amount?  Perhaps if it's low enough, family can just chip in and pay it all off?

[Trifle]

Did she agree?  Did she have the capacity to agree?  Or did they just push it for her/force her/force it themselves?  Are you sure you know the answer to that?

I'd figure that piece out first. 

If she didn't really agree, it's not an authorized charge and I would say so.  And inform them of nursing home's practices.  (Note that this is going to get back to nursing home and upset them.) 

Second, I would consider calling elder abuse authorities on this kind of crap.  They're taking advantage of people with impaired capacities who live with them - which is about as scummy as it gets, in my mind, at least.  (I'll leave others to comment more on that angle.)

Yeah, she agreed.  And she's not impaired mentally, so she has capacity.  I think it was borderline sleazy on the part of the nursing home but we've chosen not to take it up with them because she's still living there.  She may be there for the rest of her life.  :/

[Trifle]

What about a consumer proposal, where she agrees to pay a smaller amount?  Perhaps if it's low enough, family can just chip in and pay it all off?

That might work, thanks @SunnyDays.  If you know -- if the credit card company agrees to this, do they close the account I assume?   Do you know what effect it would have on her credit rating? 

[Zamboni]

Second, I would consider calling elder abuse authorities on this kind of crap.  They're taking advantage of people with impaired capacities who live with them - which is about as scummy as it gets, in my mind, at least.  (I'll leave others to comment more on that angle.)

Since I don't know what really happened, I am not sure what I would advise.

If she herself came up with the idea of putting it on a card, then that's one thing.

But if they really pressured her to do it, or even suggested using a credit card to pay them, then I am of a like mind of Finances_With_Purpose. It is highly unethical for a nursing facility to suggest a credit card to pay for care to someone who is completely and permanently disabled (and therefore can't work ever again). She was at their mercy and probably felt she had no choice.

[SunnyDays]

I don't know if they close the account.  If you're concerned about her continuing to use the card, perhaps you could just volunteer to hold it for her until all payments are made.  It will affect her credit rating until the last payment is made, but not for longer than 3 years (at least here in Canada), which is better than the 7 than bankruptcy would.

[Zamboni]

Did she only use the card to pay the care home, or was that charge mingled in with outer use of the card.

After thinking about this, I think what I would do is politely ask the nursing home to issue a refund of whatever amount equals the balanced owed on the card at this time, especially if that is the only thing she has used the card for. If the card was used for multiple things, then I would ask them to refund that month of charges that she paid them. If they won't go for the full amount, then try to get them to meet you half way and refund a big portion of it.

I had a disabled vet relative in a similar situation, although he was in the VA hospital so no one ever asked him to put anything on a card, but the whole situation kind of burns my shorts a bit, if you can't tell.

[Trifle]

Thank you @SunnyDays and @Zamboni -- you've given me lots to think about.  I have more research to do on exactly what happened and whether that might open a new path of action here.  I also need a better timeline of exactly what happened when.

This credit card is her 'general' card, so yes there were other charges on there.  Ordinary small things, nothing big.  She has basically stopped buying things now, other than clothing when she needs it, which isn't very often.  I believe she offered to put the bill on her credit card, but I'll look into that more. 

We also have to have a heart-to-heart with SIL to see what she wants to do.  Just because I would do X and Y in this situation doesn't mean she'll agree.  If she defaults, for example, I think she would find the unpleasantness -- calls from the credit ard company or collection agency -- hard.  We'll see.   

Thanks again!   

[Finances_With_Purpose]

Did she agree?  Did she have the capacity to agree?  Or did they just push it for her/force her/force it themselves?  Are you sure you know the answer to that?

I'd figure that piece out first. 

If she didn't really agree, it's not an authorized charge and I would say so.  And inform them of nursing home's practices.  (Note that this is going to get back to nursing home and upset them.) 

Second, I would consider calling elder abuse authorities on this kind of crap.  They're taking advantage of people with impaired capacities who live with them - which is about as scummy as it gets, in my mind, at least.  (I'll leave others to comment more on that angle.)

Yeah, she agreed.  And she's not impaired mentally, so she has capacity.  I think it was borderline sleazy on the part of the nursing home but we've chosen not to take it up with them because she's still living there.  She may be there for the rest of her life.  :/

It's more than borderline sleazy, but you've made a solid practical decision: there's a sad tradeoff there in terms of retribution that may not make it worth pursuing. 

[mistymoney]

not sure if it was mentioned, but will she need credit in the future?

If she does say - hey - I can and never will be able to pay a credit card bill - what will that do to any future credit needs?

Maybe she won't have them? idk.

Does the facility at least give her 50/100/?? a month for incidentals?

[Catbert]

I'm sure if the credit card company settles for a smaller account that would involve them closing the account.  I'm not sure how this gets reported  credit bureaus, however, it seems logical that it could impact her credit score.  But who cares?

If you SIL currently has okay credit and wants to continue to have use of a credit card for incidental purchases, I'd get a second card now from a different bank.

[former player]

Could your sister have a debit card rather than a credit card?  Perhaps linked to a basic bank account that prevented overdrafts?  That might solve the credit rating issue and prevent any further attempts at extracting money from her that she doesn't have.

I know that there are not the same consumer protections for a debit card, but given your sister's limited spending that probably isn't a big issue compared to the current situation.

[Dicey]

Did she agree?  Did she have the capacity to agree?  Or did they just push it for her/force her/force it themselves?  Are you sure you know the answer to that?

I'd figure that piece out first. 

If she didn't really agree, it's not an authorized charge and I would say so.  And inform them of nursing home's practices.  (Note that this is going to get back to nursing home and upset them.) 

Second, I would consider calling elder abuse authorities on this kind of crap.  They're taking advantage of people with impaired capacities who live with them - which is about as scummy as it gets, in my mind, at least.  (I'll leave others to comment more on that angle.)

Yeah, she agreed.  And she's not impaired mentally, so she has capacity.  I think it was borderline sleazy on the part of the nursing home but we've chosen not to take it up with them because she's still living there.  She may be there for the rest of her life.  :/

It's more than borderline sleazy, but you've made a solid practical decision: there's a sad tradeoff there in terms of retribution that may not make it worth pursuing.

I second digging into what triggered this event. It would not surprise me to discover someone pressured her for this payment, then siphoned off the money. Many of these facilities charge huge fees and treat their employees like crap. Absolutely worth digging into.

[Trifle]

Thanks everyone!  Yes we'll be digging into the details to figure out exactly what happened.  I'm especially interested to confirm that the home did not also get paid for that month in whole or in part from Medicaid. 

Yes that's the plan, once we get this behind us -- that SIL would have a debit card only.  I can't see any reason she needs a credit card going forward, unless she needs a credit score for some other reason, like to apply for a room at a new facility.  (I don't think  so, but I might be surprised.  My MIL in an 'independent living' situation was just required to do a credit check when applying to a new apartment building). 

[Catbert]

Thanks everyone!  Yes we'll be digging into the details to figure out exactly what happened.  I'm especially interested to confirm that the home did not also get paid for that month in whole or in part from Medicaid. 

Yes that's the plan, once we get this behind us -- that SIL would have a debit card only.  I can't see any reason she needs a credit card going forward, unless she needs a credit score for some other reason, like to apply for a room at a new facility.  (I don't think  so, but I might be surprised.  My MIL in an 'independent living' situation was just required to do a credit check when applying to a new apartment building).

If she's responsible (and it sounds like she is) you could also add her as an authorized user on one of your cards.  I honestly don't know exactly they work.  I *believe* you could set a low limit ($200) on her credit and the statement would separate out her purchases.

I honestly don't understand why everyone is so upset about the facility charging one month's cost to her credit card.  It's a business and deserves to be paid.  No different than hospitals applying pressure to get paid at least in part by credit card if you/family member has a balance owing.  Sure, confirm they didn't get paid twice.  Now that would be scammy.   

[yachi]

I honestly don't understand why everyone is so upset about the facility charging one month's cost to her credit card.  It's a business and deserves to be paid.  No different than hospitals applying pressure to get paid at least in part by credit card if you/family member has a balance owing.  Sure, confirm they didn't get paid twice.  Now that would be scammy.   

Because they are a business who every day deals with moving patients from private pay to Medicaid, and should have a procedure in place to deal with the transition better than "when you run out of cash and income, just charge it all to a credit card and stiff the credit card company until we process the Medicaid paperwork".  OP's SIL happens to be with it mentally, but most of this business's clients are likely not mentally prepared to make the transition from private pay to Medicaid.  If you're not familiar with it, Medicaid covers end of life nursing home care, but only once the patient has exhausted their income and asset sources.  Nursing home care is so expensive that it easily burns through even the assets of a FAT FIRE budget.  Mediciaid covers 6 in 10 nursing home patients, so the nursing home should be well versed in walking the family through the process.

It's very different from a hospital bill, where the hospital has little information about what their (often former!) patient's living situation or income is.

[lutorm]

If the debt is forgiven, would that count as taxable income in the eyes of the IRS?

[Trifle]

Ok, we talked to SIL and did some more digging and here's what happened.  She went to the nursing home in mid-January of last year in a self-pay situation.  The home asked her how she would like to pay, and SIL said she'd like to set up monthly auto-pay by credit card.  (She's in the habit of paying her bills that way; she physically can't write a check).  She paid $9000 a month by card for six months from January through July, spending down her assets.  Her assets were exhausted in July and she qualified for Medicaid August 1.  There was no pressure or double-dipping on the part of the nursing home.  The remaining balance on her card is for part of July.   

SIL didn't ask for help at the time she was setting up the payment method with the nursing home.  In hindsight, yes we could have helped her stop the auto payments to the home as her assets depeleted, and helped ensure she wasn't incurring a debt she couldn't pay.   And in hindsight yes, we would have preferred that the finance office at the home had sat down with SIL and explained all this, but they're a business and as far as I know they're not legally required to do that.  I'm sure they've found over the years that the last month before the Medicaid transition is tricky to get payment for, and it's best if they get paid from the credit card company and let the resident's family sort it out. :/

SIL is thinking over what she wants to do -- try to keep her credit card 'alive' by setting up a minimum payment plan, or trying to work out a deal with the credit card company that would involve closing the card.  The only piece to the whole puzzle that we don't know is if SIL would need a good credit score for some reason in the future that we're not thinking of, like if we were to move her to another facility.  I don't think she does, but we're not completely sure. 

ETA:  Oh f*k, I think you're right @lutorm!  Thank you for pointing that out.  If debt forgiveness by the credit card company is taxable income that would mess things up for sure for SIL.  Welp, back to the drawing board to figure out that new wrinkle.    My back-of-the-envelope math is that could boot her off Medicaid for three or four months.  Gah.  This goes hand in hand with @hooplady's comment above about family members paying the bill, and THAT being considered income.  In the case of the monthly minimum credit card payment (~$100) hopefully that's not enough to jeopardize her Medicaid eligibility, but I'll check into that too.     

@yachi is right that nursing home care is so expensive that it can ruin almost any budget, even Fat Fire.  Even if you have long term care insurance coverage for it it's no picnic.  A good friend of mine is dealing with that right now, with her dad in a nursing home.   

[Sibley]

Given the income restrictions, there are really only two options that I see: pay whatever minimal amount she can until the card is paid off, or default on it.

A lawyer experienced in elder care/disability rights might be able to help guide you. Not sure who would pay them, but if a family member were willing that might work and not be counted as income for your SIL.

[Trifle]

I agree with your assessment @Sibley.  It looks like SIL has only two choices here.  MIL has an elder law attorney, so I think we can ask her if she (a) agrees with this assessment, and (b) if she has any other ideas. 

Thank you all again!  You were a great help to me in figuring this out. 

[Catbert]

I suspect that the credit card would issue a 1099 (or equivalent) if the think the forgiveness is taxable.  If another family member innocently pays off/down the credit card bill I suspect they won't issue her a 1099.  :-)

[Trifle]

I suspect that the credit card would issue a 1099 (or equivalent) if the think the forgiveness is taxable.  If another family member innocently pays off/down the credit card bill I suspect they won't issue her a 1099.  :-)

Thanks @Catbert.  Yeah . . . We talked about that route too.  The thing is -- no one else in the family really has $6000 lying around.  MIL has ~$200k in assets at this point, but all of it is destined for SIL after MIL's death via a healthcare trust.  Medicaid can't touch the trust, and we are hoping to use that money to get SIL to a nicer facility.  (It's complicated, but possible to move SIL by private-paying for two years at some facilities, at which time they will allow you to stay there and transition to Medicaid.  That's our only hope for getting SIL out of this nursing home during her lifetime.  So yeah -- we want MIL to hold onto her money).   

And even if a relative did pay off the card, SIL is probably not capable of keeping something like that quiet.  She's completely honest and has no filters at all.  She has a Medicaid team that she talks with regularly, and I think that sooner or later that would spill out.  :/  I fear that at that point the Medicaid team would have no choice but to deal with it. 

[TMB]

I suspect that the credit card would issue a 1099 (or equivalent) if the think the forgiveness is taxable.  If another family member innocently pays off/down the credit card bill I suspect they won't issue her a 1099.  :-)

Insolvency (owing more than your assets) is a way to avoid cancelled debt to be considered income.  The asset test includes the cancelled debt.  So, possible that even if they issue a 1099 it wouldn't be considered income to her.

https://www.irs.gov/taxtopics/tc431