This question comes up a lot. Often if you are caring for a parent. Sometimes it is quite the surprise (shock!) to find out how much debt your parent has.
Recently I had a call on exactly this issue. The caller’s Mother had Alzheimer’s. She tended to easily forget what she wanted to (ie. those bills coming in the mail each month). After her Husband died she just stopped paying and as her illness progressed, she likely did forget. When the mail came in, she hid it or destroyed it. Her children became aware when they started helping with the finances and the mail.
The options are as plentiful as the circumstances surrounding the debt. There are a few main consideration that will determine a next step(s). The first being the avenues the credit companies can take to collect – does your parent own a home? other property? investments? other assets of value? If they own nothing and have pension income only, they are what I would call ‘judgement-proof’. That means the creditors can continue trying to collect but there is little or no incentive for them to invest in the cost of legal action as they are unlikely to get anything back That is not the case where there is property in your parents name(s)…the first course of action a creditor will consider, if they have been unsuccessful collecting via phone/letters, is to take the matter to court, obtain a judgement, and register it against the home. This means if your parents either sell the home or refinance it that the lien has to be paid. Or worse, the creditor can “execute judgement”and force the sale of the home.
What if they are leaving the home to you? – in this case, you may want to take steps to protect your future interest in the property? A conversation with a lawyer is recommended at this time. There are several options, they may want to Deed the property to you immediately, or add you on title. If they do Deed it to you, or another sibling, or all siblings, they may want to keep a life-interest in the home to protect themselves (basically this means they can live there until they pass and you cannot sell the property out from under them or refinance it in most cases).
This doesn’t guarantee the safety of the property as a creditor can challenge this in court if they feel this has been done to defeat or defraud the creditors. In a bankruptcy situation, the Licensed Insolvency Trustee would be required to review this transaction and could void (or reverse) it, causing the property to be at risk of being sold for the benefit of the creditors. As I said, there is usually no simple answer to the above question.
Generally speaking, there are a few steps you can take to help you explore your options:
- Talk to a lawyer and get their advice on what to do next (if there is property at risk)
- Send a letter to the creditors (sample letter) stating that you are assisting your parent(s), attach a copy of the POA if you have one, and ask for information to back up the debt (if this is not already available) and ask for confirmation that the debt is owed by your parent (especially if there were two parties originally and one is now gone – many times the debt may be in the deceased spouse’s name)
- Talk to a Licensed Insolvency Trustee to explore your options. Bankruptcy may not make sense in light of the circumstances, but there may be an option to consider filing a consumer proposal (debt settlement) to the creditors. If they cannot assist you, they may be able to refer you to someone who can.
- Gather all of the information you can and talk to your parent (if they are not incapacitated) and siblings (assuming that level of communication exists between you) so you can make the best decision possible.
These situations can be tricky and emotional. I wish you all the best in finding a solution that is in everyone’s best interest.
Wishing you happy, healthy, finances.
Mary Ann Marriott
aka Dr. Debt