Dear Debt Adviser,
My parents are 88 years old and 86 years old. They are physically and mentally fragile, but still living in their home with the assistance of home aides provided by Medicare. My mother had a credit card that she maxed out at $20,000, which my father is struggling to pay. The interest rate is somewhere around 30 percent and the card issuer has not been receptive to lowering the rate. My dad is paying $600 a month, which represents the interest only. What can they do?
Their home equity has been drained through a reverse mortgage. They barely have enough money to make it with their Social Security checks and the little retirement my dad receives. The $600 would go a long way toward helping them make it. Should they look into bankruptcy? Can they just walk away from the debt? My dad has been religiously paying the bill (which is not in his name) out of concern for his excellent credit score. We have had to help them fill the voids here and there. At 88, he will not be buying anything or trying to secure credit and they are really struggling. Please give us some advice. Thank you.
You asked a good question: "What can they do?" I can see that you are concerned, and maybe a little overwhelmed, about how they handle their finances. A reverse mortgage can be a great tool that uses home equity in a very legitimate and efficient way and can help many seniors stay in their homes long after they would have otherwise had to move. My suggestion is to ask them what they want to do, if anything. Both are involved because the credit card debt is in your mom's name and your dad is paying for it.
Here are some options all of you can discuss:
Lower the interest. The high rate of interest being charged is bumping up the monthly payment on your parents' credit card debt. Lowering the interest rate to 10 percent would free up about $200 per month and lessen the need for you to supplement their income. To get the rate lowered, your mother or someone with her power of attorney could call the card issuer and make the request. Due to the fact that the bill has been paid on time and as agreed for some time, the issuer may be willing to comply. Explain her financial circumstances and I suggest that the caller have a payment amount in mind that she can afford. It's better to ask for what you want than to have the lender guess. They always guess too high!
Use a professional intermediary. Your parents could contact a credit counseling agency or an attorney to negotiate a lower interest rate with the card issuer on their behalf. To find a trusted, nonprofit agency, check out NFCC.org (800) 388-2227 or AICCCA.org (866) 703-8787.
If they don't already have an attorney, look for one with experience in bankruptcy. The reason for this is that I want them to explore a bankruptcy at the same time so they understand all their options. A Chapter 7 bankruptcy for your mom only would leave your dad's credit intact. However, a bankruptcy solution may be more stressful than the payments. A good and caring attorney will help them sort through this.
Walk away. No! If this were a mortgage, that would be one thing, but walking away from a $20,000 credit card debt would be a nightmare for them. It would entail collection actions, summons and eventually having the debt turning into taxable income. When a debt this large is written off and forgiven, the lender issues an IRS 1099 form that says the money you owed is now considered taxable income, and taxes are due and payable. Tax debts are much harder to eliminate in a bankruptcy than the debt itself. So I don't suggest you go there. If this were a home, mortgages have different rules and the tax would not apply to a primary residence.
One last thing: Mom, don't use the card anymore!
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