Dealing with parents' big credit card debt The Debt Adviser by Steve Bucci • Bankrate.com

Dear Debt Adviser,
My parents are elderly, my mom being in the nursing home on medical assistance. Dad is still at home, but he gets around poorly and lives on Social Security. The problem is they have a huge credit card debt they can't afford to pay. What is the worst-case scenario? We have been trying to send payments but cannot afford to every month. And now there is a collection agency calling. I have power of attorney over their assets, but I do not know what to do.
-- LANAP

Dear LANAP,
Your parents' problem is an increasingly common one. Both the Employee Benefit Research Institute and the National Consumer Law Center recently issued reports detailing the issues surrounding elder debt. The issue is big and getting huge.

Older consumers tend to have lower credit card debt than younger consumers, but the bad news is that older consumers are catching up. Demos, a public policy group, reports the average credit card debt for Americans between 65 and 69 years old rose a shocking 217 percent between 1992 and 2001. About 20 percent of those over age 65 with incomes below $50,000 have what they term a "debt hardship." A 2006 AARP study reports that about 30 percent of retirees in their survey described debt as a problem.

Debt remedies for working consumers sometimes don't fit for seniors because they can't devote a larger portion of a fixed income to paying late fees, over-the-limit fees and penalty interest rates. Sometimes getting a quick court judgment can save money rather than struggling for a year or two to keep the collectors temporarily satisfied. For example, many people have faithfully paid their credit card accounts for years and ended up paying twice what they originally charged and still had a large balance due because of fees and exorbitant interest rates.

You ask what the worst-case scenario is if the debt goes unpaid. If your parents have no assets to speak of in their names, then the creditors have limited legal recourse. If they do have assets like a home or savings, then the situation is a bit more complicated.

Your worst-case scenario might come from making payments if you can't eventually satisfy the debt, not from defaulting. If the credit card accounts have default interest rates and are accumulating late and over-the-limit fees, it may be a better option to end up in court where, depending on the state in which your parents live, interest may drop and fees may stop with a court judgment. In some states interest stops or goes to a court-appointed rate (that will be much lower than 30 percent -- usually zero percent to 12 percent) with a judgment. Any fees should end in most cases, although you may owe some legal or collection costs.

From what you have written it sounds like your parents only have Social Security to support themselves. My recommendation is to contact an attorney to fully understand your options and the consequences of each. For example, if you were to communicate with the creditors or collectors and let them know that the only income is the Social Security benefits, they may just forgive the debt. A word of caution: This could end up with your parents getting a tax bill for the forgiven amount. A forgiven debt can count as income and taxes would be due. This type of debt would likely survive a bankruptcy and could affect future Social Security payments if the IRS were to pursue it. This is very tricky business!

In the interim, while you are seeking legal advice, you can stop the phone calls by using your rights under the Fair Debt Collection Practices Act. Request in writing that the collector or collectors stop communication with you regarding the debt. Or you may want to invest in a good answering machine to screen your calls.

If your parents own a home you might consider a reverse mortgage to pay down the debt. Another alternative would be for your parents to look into bankruptcy protection to eliminate the credit card debt. Your attorney can best advise you on this, as well.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies." Visit MMI for additional debt advice or to ask a question of the Debt Adviser, go to the "Ask the Experts" page.