What Can We Do About Our Parents’ Credit Card Debts?

Question: My wife and I have just become agents under a power of attorney for her parents. They are both in their late sixties, and her mother has just been diagnosed with terminal cancer. We moved them into a retirement home so her mother can get the extra help she needs. After gaining access to their finances, we’ve discovered that her father has accumulated over $100,000 in credit card debt spread among several cards. We purchased their home, and they recently sold some land that was in a trust. Her mother just transferred to my wife a 25 percent interest in a farm, held with several other family members. They have approximately $50,000 in their bank account, and $20,000 in a 401(k), but otherwise have no further assets or income outside of Social Security. If they continue to pay their credit card minimums, they’ll exhaust their entire savings at the end of next year and won’t be able to pay their rent. At this point, is there anything we can do to settle the credit card debt? Can they walk away from it? We have no idea what options we have and are incredibly overwhelmed.

Answer: That does sound like a difficult situation. You should be able to work something out with the credit card companies, but your in-laws probably can’t walk away from the debt altogether. The first question is whether your mother-in-law was a signatory on the credit cards as well as your father-in-law. If not, you’re in better shape because she’s not responsible for her husband’s debts. If your mother-in-law is on the debt, then the transfer of the interest in the farm could be deemed “fraudulent.” This doesn’t mean that there was any fraud involved, but the credit card company could consider that she transferred the farm to avoid paying a debt. This could also be true of the house if you and your wife paid less than fair market value for it. The consequence of this is that the creditors could reach the property.

The 401(k) account is protected from creditors, so spend it last.