Please Help - Bipolar mom ruined her finances!

[JJtheNav]

Dear friends, I have found this site to be full of extremely intelligent people and I am now turning to you for help.

My 73-year-old handicapped mother who lives alone and was doing fine for the last 7 years recently had a terrible manic bipolar episode in which she completely ruined her credit and her life. During this time, she lost her job, gave away her vehicle, started remodeling her house by charging up credit cards, putting a $15k roof on (twice what it should cost), a $13k shabby shower remodel, and she cussed out her family for trying to intervene and threatened to call the police when we did, and to top it off she suffered from hypothermia during a freeze because she had taken her thermostat off the wall. If I didn't go check on her (against her wishes), she would have surely died. She didn't know where she was, what day it was, or even who I was when I found her. I immediately called 911 and she was taken in and later transferred to the Psych department for treatment for her mental disorder.

Long story short, she's home now and not doing well but she's no longer manic and is surviving. She lost much of her mental capacity and can no longer work or make financial decisions. I am left in charge of her both financially and for her physical well-being and I now have Power of Attorney. She has no savings and she makes $1,200/month in social security and a small pension. Her debts or over $110k ($55k home loan and $65k in medical, IRS and credit card bills), her house is worth around $160k. She doesn't want to go anywhere or do anything at all and there aren't any family members who can take her in.

Here's where I need some advice, in regards to her financial mess - she can't make the minimum monthly payments and the fees and interest are adding up fast. How important is it to pay off the medical and credit card debt anyway? At her age and current state, I don't see her going anywhere or needing good credit for anything. She no longer drives and doesn't work, so she's basically just living out her final years. She has the home mortgage and IRS debt that must be paid or she'll lose the house, but the others are what I'm unsure of. Someone suggested she file bankruptcy, is that a viable and better option? What about those debt consolidation services? I've read some bad reviews recently, so I'm not sure.

Thank you in advance for your help in this dire matter, I greatly appreciate it.

 

[Jerry1]

So sorry for your situation. My opinion, specific to your question, is to consider (talk to an attorney) bankruptcy. I would steer clear of the debt consolidation option. It just doesn’t seem to be what your mom needs. She needs a clean slate and that's what bankruptcy was meant to handle and there’s no reason to shy away from it when a person is truly in need. From what you described, it certainly appears that would describe your mother and her situation. Wish you the best.

 

[SecondCor521]

Your Mom is not bankrupt because she could sell her house and pay off her debts, so I would not bother consulting a bankruptcy attorney.

I would also not use any debt consolidation company. You can do what they do yourself if you want to.

I understand her wanting to stay in her home and I understand the cash flow crunch she could be in.

She should pay her living expenses *first* (including mortgage, utilities, food), IRS *second* and everyone else *third*.

If she's just barely underwater *and* you have complete control over her finances (i.e., she can't overspend again because you've got a conservatorship), you could consider refinancing the credit card debt into a HELOC. That may help her make some slow headway.

Eventually what will probably happen is she will fall behind on some of the credit cards, at which point you can make an offer for settlement, which I think for credit cards is about 20 cents per dollar.

She can also make a similar request to the IRS. I believe it is called an offer in compromise. Until she does (you do) that, you can also do a payment plan (she probably already has one of these or soon will). (This is all the "tax resolution" companies do; they're similar to the debt negotiation / debt consolidation companies.)

It's good that you now have POA. Sorry your mother and you are going through this.

One last comment, which you probably know: You're not liable for your Mom's debts, so if her assets don't pay off her debts when she dies, then you can legally (and I think ethically) tell the debtors to pound sand when they try to guilt you into paying them.

 

[Blueskies123]

Your Mom is not bankrupt because she could sell her house and pay off her debts, so I would not bother consulting a bankruptcy attorney.

.

Depends up the state, check with an attorney.

 

[Fermion]

I think in Washington state, $125,000 of your primary home is protected in a bankruptcy...something like that.

 

[SecondCor521]

Also, at her income level and her age, she is probably close to poverty level and might qualify for Medicaid, lower utility bills, lower property taxes, and maybe other social services. These kinds of things might lower her regular monthly bills and help her make more forward progress.

 

[SecondCor521]

Depends up the state, check with an attorney.

In what state would someone with $160K in assets and $110K in liabilities qualify as bankrupt?

I was under the impression that the definition of bankruptcy is liabilities exceeding assets, which OP's Mom doesn't meet.

OP's Mom may be close to insolvency, which is the inability to pay current expenses with current income, but that's a different kettle of fish.

(As an aside, if she keeps the house, her mortgage would not be dischargeable in bankruptcy, nor would (probably) the IRS debt.)

 

[FlaGator]

Familiar situation, just arrived there differently than I did. Your goal is to keep her comfortable with her resources, not yours. Keep the mortgage current enough to avoid foreclosure. (30-60 days late). Stop paying the credit cards. Negotiate with the IRS, if they know there is nothing to get, they are flexible. Sell the car, cut other overhead to the bare bones. Might have a few more tips for you later.

 

[Gumby]

In what state would someone with $160K in assets and $110K in liabilities qualify as bankrupt?

I was under the impression that the definition of bankruptcy is liabilities exceeding assets, which OP's Mom doesn't meet.
...

Consult a bankruptcy attorney. In general, a person my file a bankruptcy petition if they are unable to pay their debts as they come due. Check out 11 U.S.C. Sec. 109 for who may be a debtor in a bankruptcy case. https://www.law.cornell.edu/uscode/text/11/109 Pay particular attention to 109(h)(4). The person does not need to be technically insolvent, as there are protections, such as the homestead exemption, that apply to certain assets.

Edit to add: Bankruptcy is governed by federal law 11 U.S.C. Sec. 101 et seq., although exemptions may vary by state.

 

[Ready]

If her physical and mental health continue to decline it’s unlikely she is going to be able to live in her home by herself. She may either need to move in with you or to an assisted living facility, at which point you could sell her home and use it to pay off some of the debts.

 

[daylatedollarshort]

Also, at her income level and her age, she is probably close to poverty level and might qualify for Medicaid, lower utility bills, lower property taxes, and maybe other social services. These kinds of things might lower her regular monthly bills and help her make more forward progress.

+1. We have many programs like that in our area at the state and local level. Also, our local senior center has free meals, inexpensive door to door bus service, discounts on produce, daily activities and many more services all for a small annual membership fee. Our public transit system sells passes for seniors at a deep discount. I don't know if she would qualify for food stamps with her house as an asset, but food banks or pantries might also be an option. For low income entertainment, check out what your local library has to offer. Beside the usual books, music and DVDs, ours has many free event and cultural activity passes.

Our local senior center has people on staff to help with social services, financial counseling, health care counseling, income taxes, etc. If you don't have a local senior center, your city or county likely has a social services department aimed at senior help. You can also ask for advice on Reddit's Poverty Finance subreddit.

One of our local senior centers has a roommate matching service, where they do the screening and background checks. If you think that would work for your mom, rent from a roommate, or roommates Golden Girl style, could boost her income.

If your mom has her mental faculties back, you might be able to find some things on the Reddit Beer Money subreddit she could do to boost her income a bit. Some people on there make over $1K a month just with odds and ends online work.

Good luck. We had to do something similar for a parent and found out about a lot of great services we hadn't known about. Besides the bankruptcy attorney others have mentioned, you may also want to consult an elder care attorney to help navigate Medicaid for future nursing home care.

 

[JustCurious]

How important is it to pay off the medical and credit card debt anyway?

Not important at all, she is better off not paying them. From what you described she is not collectible and does not care about her credit score so it doesn't matter.

 

[jazz4cash]

Would she qualify for a reverse mortgage?

 

[JJtheNav]

Not sure what it takes to qualify, but her credit is shot as well as her DTI ratio.

 

[RetireeRobert]

How important is it to pay off the medical and credit card debt anyway? At her age and current state, I don't see her going anywhere or needing good credit for anything.

I believe if you talk to the medical providers, you may find there is a lot of leeway and many providers are easily amendable in "adjusting" the balances now claimed due and payable. Credit card companies maybe not quite so amendable to adjustments, but talk to them as well. Seems if a payment plan is set up with CC companies, the least they could do would be to stop with the late fees and penalties. IRS as well, talk to them about payment plans.

 

[Sunset]

OP - Spend the few hundred dollars it might cost to talk to a bankruptcy lawyer, bring a list of all debts and income, so you can talk real numbers.

A quick google search suggests she could keep the house as it would be exempt.

Worst thing would be to struggle to pay off various debts, by depleting the house asset, and then still lose everything.

 

[RetireeRobert]

Found this about bankruptcy in Texas (which appears to be state of residence of OP):

https://upsolve.org/learn/tx-exemptions/

Appears Texas allows "unlimited" personal residence equity exemption.

 

[YakGrl]

I went through something similar with my Mother. I found that with no assets other than house and car, it wasn't necessary to pay for bankruptcy process. In our state house and minimum car was sheltered from collections. I contacted all creditors and explained that there was no way to make payments. At minimal social security income, food utilities and insurance payments exceeded income. As stated it ruined her credit score, but that was already very low and also helped to prevent any chance of further loans. You need to check what your state collections laws are. Also learn your collection laws on what to tell collection agents to limit their contact. Actually, Dave Ramsay books/podcast were useful in learning how to deal with collections. The IRS is different from other creditors and hopefully someone will advise on that issue.

 

[gauss]

In what state would someone with $160K in assets and $110K in liabilities qualify as bankrupt?

I believe Florida at one time had an unlimited personal residence bankruptcy exemption.

Do you have just a POA for her, or do you have a full-blown court-appointed guardianship/conservatorship in place?

My Bipolar office mate at work ended up with his son as court appointed guardian/conservator.

Many places may refuse to honor your POA - as they legally can.
Your Mom could also cancel the POA at anytime if she has another episdode.

They cannot refuse to honor the court-appointed roles listed above.

Also the POA would allow her to still open up new lines of credit and run up new debt in her own name. If there is a guardianship/conservatorship in place, I am pretty sure that this would be prevented and she would not be held liable for future debt if she could even find someone to open an account in her name.


Something else to look into in addition to the bankruptcy attorney.

-gauss

 

[VanWinkle]

Also, at her income level and her age, she is probably close to poverty level and might qualify for Medicaid, lower utility bills, lower property taxes, and maybe other social services. These kinds of things might lower her regular monthly bills and help her make more forward progress.

^^^^This

 

[JJtheNav]

Do you have just a POA for her, or do you have a full-blown court-appointed guardianship/conservatorship in place?

-gauss

I just have a POA. Thank you and everyone else for the great info. I appreciate all the help!

 

[SecondCor521]

Consult a bankruptcy attorney. In general, a person my file a bankruptcy petition if they are unable to pay their debts as they come due. Check out 11 U.S.C. Sec. 109 for who may be a debtor in a bankruptcy case. https://www.law.cornell.edu/uscode/text/11/109 Pay particular attention to 109(h)(4). The person does not need to be technically insolvent, as there are protections, such as the homestead exemption, that apply to certain assets.

Edit to add: Bankruptcy is governed by federal law 11 U.S.C. Sec. 101 et seq., although exemptions may vary by state.

Thanks for the detail.

So it sounds like someone may file for bankruptcy when they are merely insolvent. I understand that one of the main points of filing for bankruptcy is that it stops collection efforts by debtors (which is a good feature IMHO).

However, I thought that the process after that point was to then actually determine if the person could, if given time and space to do so, pay their debts/bills. If not, then they would actually be bankrupt and could wipe away most of their debts and start over - I think that's a chapter 7 bankruptcy. If so, they'd be shifted to another type of bankruptcy (chapter 13?) where they'd be put on payment plans.

It is also my understanding that if a person wants to keep their house, they would need to / get to keep their mortgage(s). The homestead laws around bankruptcy do not mean, as far as I know, that you can just wipe away your mortgage and keep your house.

So in the OP's case, they could pay a few grand to a bankruptcy attorney to go through a legal process to end up in a place where they still have the home, the mortgage, the IRS debt, and possibly payment plans on the rest, or maybe those get wiped away if they manage to stay in chapter 7. Or, they could not file bankruptcy and set up payment plans. I guess if I were in that situation I'd probably not pay the few grand to do a bankruptcy over $50K, but not having been in OP's shoes I can see how it might be different from the inside looking out.

I'd like to add that I wouldn't even be concerned about the credit impacts nor any societal judgment. It just seems like OP's Mom would end up in essentially the same place after a lot more effort and expense.

I also tend to think that if I go to a bankruptcy attorney and ask them if I should file bankruptcy, they're going to be honest but probably biased towards bankruptcy in edge cases because it's their livelihood.

 

[Hermit]

I was quite lucky in finding a good and caring lawyer who specializes in elderly law. She did my will and other documents but more importantly worked with the wife of a very good friend when he passed away. The lawyer returned calls promptly and helped the friends wife through the Medicaid process of paying his Alzheimer's care facility debts. The lawyer also helped her stop the billing from a different, unscrupulous lawyer who advertised elder law but did not know the field. I found this lawyer at a Senior Law Day put on by the local bar association where lawyers specializing in elder law spoke on different subjects concerning elder law. Perhaps you could find a similar event in your local community.

 

[stepford]

This isn't of any help to the OP, but his comment that his Mom's $15K roof was vastly overpriced is no longer true. With the recent run-up in lumber costs, all estimates to re-roof my (quite small) house have exceeded that.

 

[RetiredAt55.5]

This isn't of any help to the OP, but his comment that his Mom's $15K roof was vastly overpriced is no longer true. With the recent run-up in lumber costs, all estimates to re-roof my (quite small) house have exceeded that.

Unless the roof is in really, really bad shape, a re-roof doesn't use much wood, unless we're talking about wood shingles. I hope roofing materials (asphault shingles, tar paper, etc.) haven't also spiked in price.

Of course, roofers might be busier so they might be pricing their jobs higher too.