Elderly parents are in debt - Need advice

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Regattamom
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Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 6:36 pm

My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.

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prudent
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Re: Elderly parents are in debt - Need advice

Post by prudent » Tue Sep 18, 2018 7:01 pm

Are their debts jointly held or only in your father's name?

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 7:12 pm

I believe most are jointly held and they live in a community property state.

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Re: Elderly parents are in debt - Need advice

Post by livesoft » Tue Sep 18, 2018 7:39 pm

Family meeting time! Do you have [step]-siblings?
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Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 7:58 pm

Just two full siblings who don't like to think or talk about our parents financial predicament. I think I could get my dad to change the beneficiary to one us if he thinks it could help my mother, though.

Dottie57
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Re: Elderly parents are in debt - Need advice

Post by Dottie57 » Tue Sep 18, 2018 8:07 pm

Are any of you willing to take you parents in?

Look at you state laws. I believe sometimes creditors can get insurance money even if it is assigned a beneficiary.

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sergeant
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Re: Elderly parents are in debt - Need advice

Post by sergeant » Tue Sep 18, 2018 8:13 pm

I would let the chips fall where they fall. What if you or an immediate family member is involved in an incident that brings civil liability just before he dies? The 200k would be at risk. What if you inherit the 200k, co-mingle assets, and your spouse files for divorce? Probably a whole lot of other things could go wrong.
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Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 8:23 pm

I live in a different state than my parents. Looking at both state's laws, I don't believe I would liable for their debt if I was designated at the beneficiary.

As far as letting the chips fall where they may - I KNOW my mom would lose at least a third and probably closer to one-half of the money to creditors if she remains the beneficiary. The chances of me incurring civil liability or getting divorced are extremely slim and same can be said of my siblings. The odds are better if we move the policy.

Thesaints
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Re: Elderly parents are in debt - Need advice

Post by Thesaints » Tue Sep 18, 2018 8:27 pm

Maybe your siblings will suddenly acquire some interest in financial matters and strongly object to the move...

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 8:45 pm

My siblings and I get along just fine, they just prefer to not talk about our parents finances because it is stressful. So by default, I am the one who talks with my parents. I wouldn't care if they were the beneficiary and they would be fine with it being me. We all love and want the best for our mother.

Alto Astral
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Re: Elderly parents are in debt - Need advice

Post by Alto Astral » Tue Sep 18, 2018 9:02 pm

Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.

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Re: Elderly parents are in debt - Need advice

Post by AlphaLess » Tue Sep 18, 2018 9:05 pm

Regattamom wrote:
Tue Sep 18, 2018 7:58 pm
Just two full siblings who don't like to think or talk about our parents financial predicament. I think I could get my dad to change the beneficiary to one us if he thinks it could help my mother, though.
How would that look in bankruptcy court?
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inbox788
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Re: Elderly parents are in debt - Need advice

Post by inbox788 » Tue Sep 18, 2018 9:06 pm

What type of policy and what are the costs? Any cash out value? The poor health may change the risk/benefit value of the policy, but is it totally clear it's worth keeping? What happens to the policy in bankruptcy?

https://hainesandkrieger.com/what-happe ... ankruptcy/

mptfan
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Re: Elderly parents are in debt - Need advice

Post by mptfan » Tue Sep 18, 2018 9:11 pm

Did your parents ask for your advice?

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Re: Elderly parents are in debt - Need advice

Post by Tdubs » Tue Sep 18, 2018 9:12 pm

What are their sources of income?

TheDDC
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Re: Elderly parents are in debt - Need advice

Post by TheDDC » Tue Sep 18, 2018 9:18 pm

It would be a bad idea to assume their debt without a payment plan/structure that would be legally enforceable, even for pennies on the dollar. Assuming debt would require some stipulations including total control over income stream, property (including vehicles) and the ability to liquidate assets. If they are not comfortable signing these things over, walk away.

-TheDDC

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 9:35 pm

Alto Astral wrote:
Tue Sep 18, 2018 9:02 pm
Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.

Thank you for your advice.

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Re: Elderly parents are in debt - Need advice

Post by ThePrince » Tue Sep 18, 2018 9:40 pm

mptfan wrote:
Tue Sep 18, 2018 9:11 pm
Did your parents ask for your advice?
If he and/or his siblings will be the ones picking up the pieces and expense of his/their parent’s wreckless behavior and bad choices, he nor his siblings have to wait until asked before providing spot on advice.

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Tue Sep 18, 2018 9:49 pm

Answers to questions:

I have no idea how it would look in bankruptcy court and I couldn't find anything online. Maybe someone here knows?

It is a term life policy. No cash-out value. Value remains the same.

My mother asked for advice - my dad is in the hospital and we haven't talked yet. But why does it matter if they asked or I offered as long as we all agree?

They receive social security along with some income from a home based business. My mother would not be able to continue the home business without my father and the social security is not enough for her to be able to keep her home. She says she would want to move into an apartment so that she wouldn't have the upkeep of a house.

I don't plan on assuming their debt and neither do my siblings.

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Re: Elderly parents are in debt - Need advice

Post by ColoRetiredGirl » Tue Sep 18, 2018 10:24 pm

Regattamom wrote:
Tue Sep 18, 2018 9:35 pm
Alto Astral wrote:
Tue Sep 18, 2018 9:02 pm
Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.

Thank you for your advice.
Maybe not good advice. I am no attorney but I do believe the bankruptcy court will do a “look back” for either 3 to 5 years to review asset history to ensure no transfer of assets prior to filing bankruptcy. You may want to look into this.

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Re: Elderly parents are in debt - Need advice

Post by JGoneRiding » Tue Sep 18, 2018 10:30 pm

ColoRetiredGirl wrote:
Tue Sep 18, 2018 10:24 pm
Regattamom wrote:
Tue Sep 18, 2018 9:35 pm
Alto Astral wrote:
Tue Sep 18, 2018 9:02 pm
Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.

Thank you for your advice.
Maybe not good advice. I am no attorney but I do believe the bankruptcy court will do a “look back” for either 3 to 5 years to review asset history to ensure no transfer of assets prior to filing bankruptcy. You may want to look into this.
It's a term life policy. It will expire at some point so it isn't considered an asset. Only if he dies in the term will they get anything so they should be fine to change the beneficiary no need to report it. Ianal thay should consult one.

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Re: Elderly parents are in debt - Need advice

Post by N1CKV » Wed Sep 19, 2018 3:48 pm

I am not a lawyer (in any state, for anybody...):
I would suggest setting up a trust as a beneficiary of the life insurance policy. The trust beneficiary would be your mother, with a structured disbursement plan. You and your siblings would be contingent beneficiaries and it would dissolve on your mother's passing. This removes the proceeds from your mother's possession.
They should file for bankruptcy protection. This hopefully will scrub the un-collateralized debt and restructure the auto/home debt to something that they can handle.
I have met a lot of people that claim to love money, but they also seem to be the same people that are in the biggest hurry to get rid of it.

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Re: Elderly parents are in debt - Need advice

Post by Nate79 » Wed Sep 19, 2018 4:19 pm

They may just consider defaulting on all the debt. If they can't afford to pay they can't afford. They sound like they are judgement proof. No income except SS, no assets either. The car is gone either way (will be repo'd or will lose it in bankruptcy). Bankruptcy I believe costs money and I'm not sure it's worth it.

Not sure what's going to happen to the house though. If they sell it I don't know what happens to the proceeds in case their creditors sue them (which they will).

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Re: Elderly parents are in debt - Need advice

Post by JoeRetire » Wed Sep 19, 2018 4:40 pm

Regattamom wrote:
Tue Sep 18, 2018 6:36 pm
My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.
They should be talking to an estate planning lawyer with a background in bankruptcy. This is not a DIY situation.

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Re: Elderly parents are in debt - Need advice

Post by ColoRetiredGirl » Wed Sep 19, 2018 5:36 pm

JGoneRiding wrote:
Tue Sep 18, 2018 10:30 pm
ColoRetiredGirl wrote:
Tue Sep 18, 2018 10:24 pm
Regattamom wrote:
Tue Sep 18, 2018 9:35 pm
Alto Astral wrote:
Tue Sep 18, 2018 9:02 pm
Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.

Thank you for your advice.
Maybe not good advice. I am no attorney but I do believe the bankruptcy court will do a “look back” for either 3 to 5 years to review asset history to ensure no transfer of assets prior to filing bankruptcy. You may want to look into this.
It's a term life policy. It will expire at some point so it isn't considered an asset. Only if he dies in the term will they get anything so they should be fine to change the beneficiary no need to report it. Ianal thay should consult one.
Thanks JGoneRiding. I didn’t catch it was a life insurance policy.

Olemiss540
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Re: Elderly parents are in debt - Need advice

Post by Olemiss540 » Wed Sep 19, 2018 6:15 pm

I am guessing after 70 years, bankruptcy, providing assistance, etc is not going to change much of anything. They need to try and get through the next few months dealing with health issues and then try to convert to a Dave Ramsey style change of habits. Try to get them the Total Money Makeover or into Financial Peace University. Get out from under the house/payment and do whatever they can to pay off the loans. Maybe when their car is repo'ed the kids can pool a few grand to buy a beater.

Just wiping the slate clean will end up with then in the same situation 12 months from now. Maybe a job as a WM greeter? Something to bring additional money in on the side?

Horrible situation and tough time to deal with it when going through medical issues. Hope the family can provide some sunlight through frequent visits or something.
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Re: Elderly parents are in debt - Need advice

Post by Amanda999 » Wed Sep 19, 2018 6:50 pm

Alto Astral wrote:
Tue Sep 18, 2018 9:02 pm
Makes sense. You could present it this way: your dad could temporarily make you/siblings the beneficiary. Then proceed with bankruptcy filings. After that's done, he could change back the beneficiary your mom again. This should be an easier conversation.
OP: Please, please, please don't do the above (without first paying for advice from a practicing bankruptcy lawyer in your state, and getting a written letter from him saying you/mom/dad can do this) - I'm worried it could be construed as bankruptcy fraud, which is a federal crime. (People can go to jail for secreting assets from their bankruptcy cases.)

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Re: Elderly parents are in debt - Need advice

Post by celia » Wed Sep 19, 2018 7:37 pm

Who is paying for the life insurance premiums and how much are the premiums? It may make more sense to stop paying premiums and pay off some bills first, starting with the one that has the highest interest rate.

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Re: Elderly parents are in debt - Need advice

Post by drawpoker » Wed Sep 19, 2018 7:39 pm

Please consult a qualified elder care attorney in the state of your parents' residence.

A 15-minute quick consult might even be free as these attorneys expect, because of the complexity of the laws, to obtain a new client.

As others have posted, it is imperative you make no moves on your own until you get competent legal advice. You could really mess up something badly, even tho your intentions are the best.

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Re: Elderly parents are in debt - Need advice

Post by mptfan » Thu Sep 20, 2018 6:34 am

Olemiss540 wrote:
Wed Sep 19, 2018 6:15 pm
I am guessing after 70 years, bankruptcy, providing assistance, etc is not going to change much of anything. They need to try and get through the next few months dealing with health issues and then try to convert to a Dave Ramsey style change of habits.
Good luck with that.

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Re: Elderly parents are in debt - Need advice

Post by RickBoglehead » Thu Sep 20, 2018 7:26 am

I echo consulting with a bankruptcy attorney, no way you do this without legal advice.

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Thu Sep 20, 2018 1:12 pm

Thanks to everyone for their posts. You've given me a lot to think about. I have spoken to my father and he understands the concerns my mother, siblings and I all have. He says he will contact an attorney for advice, but at first glance, I think he is inclined to change the beneificiary to me.

TheAccountant
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Re: Elderly parents are in debt - Need advice

Post by TheAccountant » Thu Sep 20, 2018 1:38 pm

Regattamom wrote:
Tue Sep 18, 2018 6:36 pm
My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.


No way would I file for bankruptcy if I were them.

How much equity do they have in the home? Do they not have social security income?

I'd take out a HELOC and use that to cash flow their monthly expenses before filing for bankruptcy.

Are they upside down on the car? If not, sell it and use that to pay down the loans.

The #1 thing will be to get them out of debt. Bankruptcy shouldn't even be considered at this point, IMO.

Someone correct me if I am wrong, but you'd have to prove that you rely on their income to survive before adding yourself to the policy.

inbox788
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Re: Elderly parents are in debt - Need advice

Post by inbox788 » Thu Sep 20, 2018 1:55 pm

TheAccountant wrote:
Thu Sep 20, 2018 1:38 pm
Someone correct me if I am wrong, but you'd have to prove that you rely on their income to survive before adding yourself to the policy.
Interesting question I know little about, but it's interesting what this says about insurable interest in the UK. No section on US yet.
A person is presumed to have an insurable interest in his or her own life,[8] preferring to be alive and in good health rather than being sick, injured or dead. The unlimited interest extends to the life of spouses (and, since 2004, civil partners), even if there is no financial dependency.[9]

Law in the United Kingdom does not recognize other classes of so-called 'natural affection' however, thus:

Parents have no interest in the lives of their children
Siblings have no interest in the lives of their fellow siblings
Children have no interest in the lives of their parents (Scotland only)[10]
Nor is insurable interest recognized for cohabiting couples. Although many insurers will accept such policies, they could potentially be invalidated because they have not been tested in court. In recent years, there have been moves to pass clear statutory provisions in this regard, which have not yet borne fruit.[11]
https://en.wikipedia.org/wiki/Insurable_interest

Life insurance is a mainstay of estate planning tools, and I wonder how this issue is dealt with when it comes to adult children, nieces/nephews and other relatives who are simply heirs. Their only financial reliance on your wealth may be that fancy sports car or big boat they couldn't afford on their own.

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Thu Sep 20, 2018 3:06 pm

TheAccountant wrote:
Thu Sep 20, 2018 1:38 pm
Regattamom wrote:
Tue Sep 18, 2018 6:36 pm
My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.


No way would I file for bankruptcy if I were them.

How much equity do they have in the home? Do they not have social security income?

I'd take out a HELOC and use that to cash flow their monthly expenses before filing for bankruptcy.

Are they upside down on the car? If not, sell it and use that to pay down the loans.

The #1 thing will be to get them out of debt. Bankruptcy shouldn't even be considered at this point, IMO.

Someone correct me if I am wrong, but you'd have to prove that you rely on their income to survive before adding yourself to the policy.

They have very little equity (maybe $25k) and they wouldn't qualify for a HELOC. They owe $140k. Their combined SS income is about $1250. My mother receives approx $400 from a pension. They currently have income from their homebased business but it varies and I am not sure of the amount. They are upside down in the car. They can homestead their house and keep it while having other debt discharged through bankruptcy which is what they plan to do.

I have never heard of a beneficiary having to prove they are income reliant. My personal life insurance policy says nothing of the sort.

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Re: Elderly parents are in debt - Need advice

Post by delamer » Thu Sep 20, 2018 3:12 pm

TheAccountant wrote:
Thu Sep 20, 2018 1:38 pm
Regattamom wrote:
Tue Sep 18, 2018 6:36 pm
My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.


No way would I file for bankruptcy if I were them.

How much equity do they have in the home? Do they not have social security income?

I'd take out a HELOC and use that to cash flow their monthly expenses before filing for bankruptcy.

Are they upside down on the car? If not, sell it and use that to pay down the loans.

The #1 thing will be to get them out of debt. Bankruptcy shouldn't even be considered at this point, IMO.

Someone correct me if I am wrong, but you'd have to prove that you rely on their income to survive before adding yourself to the policy.
How would they qualify for a HELOC, given their financial situation?

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Re: Elderly parents are in debt - Need advice

Post by TheAccountant » Thu Sep 20, 2018 3:52 pm

Regattamom wrote:
Thu Sep 20, 2018 3:06 pm
TheAccountant wrote:
Thu Sep 20, 2018 1:38 pm
Regattamom wrote:
Tue Sep 18, 2018 6:36 pm
My parents, both in their seventies, have a lot of debt and no assets except a small amount of equity in their home. They owe money on their car, they have thousands (about 45k) in credit card debt, and they have other personal loans. They have zero in cash savings. They are looking into filing for bankruptcy because they no longer have the cash flow that they had from a prior business. They have always been reckless with their finances and it has always been a worry for me.

My father has a life insurance policy of $200,000 and my mother is the beneficiary. He just recently had a massive heart attack and I am worried about his health. If he dies before they file for bankruptcy, I assume this money from the life insurance policy will be available to creditors when my mother receives it. Is it advisable to have him change the beneficiary to me or one of my siblings so that it does not go towards their debt?

I am only thinking of my mother's future. I don't like that they have unpaid debt, but I want to help my mother.


No way would I file for bankruptcy if I were them.

How much equity do they have in the home? Do they not have social security income?

I'd take out a HELOC and use that to cash flow their monthly expenses before filing for bankruptcy.

Are they upside down on the car? If not, sell it and use that to pay down the loans.

The #1 thing will be to get them out of debt. Bankruptcy shouldn't even be considered at this point, IMO.

Someone correct me if I am wrong, but you'd have to prove that you rely on their income to survive before adding yourself to the policy.

They have very little equity (maybe $25k) and they wouldn't qualify for a HELOC. They owe $140k. Their combined SS income is about $1250. My mother receives approx $400 from a pension. They currently have income from their homebased business but it varies and I am not sure of the amount. They are upside down in the car. They can homestead their house and keep it while having other debt discharged through bankruptcy which is what they plan to do.

I have never heard of a beneficiary having to prove they are income reliant. My personal life insurance policy says nothing of the sort.
How much of that is car debt? Can they sell anything to bring the debt load down?

I'm assuming the other loans are unsecured.

Is the pension $ 400/mo?

Have you ran a budget to see if they can stay afloat on the SS and pension income?

Regattamom
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Re: Elderly parents are in debt - Need advice

Post by Regattamom » Thu Sep 20, 2018 4:36 pm

The current financial situation of my parents is bad, but I'm not interested in going into complete detail. I realize they need to cut back, pay things off, etc... I can only do so much to advise them.

My concern right now is if my father dies soon and how to keep creditors from taking the life insurance policy money he will leave. My mother will need this money to live on.

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BL
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Re: Elderly parents are in debt - Need advice

Post by BL » Thu Sep 20, 2018 7:08 pm

drawpoker wrote:
Wed Sep 19, 2018 7:39 pm
Please consult a qualified elder care attorney in the state of your parents' residence.

A 15-minute quick consult might even be free as these attorneys expect, because of the complexity of the laws, to obtain a new client.

As others have posted, it is imperative you make no moves on your own until you get competent legal advice. You could really mess up something badly, even tho your intentions are the best.
+1
There may be future long-term care issues, Medicaid issues, etc. to consider. The lawyer is the one that knows the laws of your state. Not sure if bankruptcy is the answer anyway, in this case.

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Re: Elderly parents are in debt - Need advice

Post by White Coat Investor » Thu Sep 20, 2018 7:28 pm

livesoft wrote:
Tue Sep 18, 2018 7:39 pm
Family meeting time! Do you have [step]-siblings?
Probably a good idea to include an attorney in your state that specializes in bankruptcy +/- medicaid planning.
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