Q: My parents are elderly, my mom being in a nursing home on medical assistance. Dad is still at home, but he gets around poorly and lives on Social Security. The problem is they have a huge credit-card debt they can't afford to pay. What is the worst-case scenario? We have been trying to send payments but cannot afford to every month. And now there is a collection agency calling. I have power of attorney over their assets, but I do not know what to do.
A: Older consumers tend to have lower credit-card debt than younger consumers, but the bad news is that older consumers are catching up. Demos, a public-policy group, reports the average credit-card debt for Americans between 65 and 69 years old rose a shocking 217 percent between 1992 and 2001. About 20 percent of those over age 65 with incomes below $50,000 have what they term a "debt hardship." A 2006 AARP study reports that about 30 percent of retirees in their survey described debt as a problem.
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Debt remedies for working consumers sometimes don't fit for seniors because they can't devote a larger portion of a fixed income to paying late fees, over-the-limit fees and penalty interest rates. Sometimes a quick court judgment can save money over struggling for a year or two to keep the collectors temporarily satisfied.
You ask what the worst-case scenario is if the debt goes unpaid. If your parents have no assets to speak of in their names, then creditors have limited legal options. If they do have assets like a home or savings, the situation is a bit more complicated.
Your worst-case scenario might come from making payments if you can't eventually satisfy the debt, not from defaulting. If the credit-card accounts have default interest rates and are accumulating late and over-the-limit fees, it may be a better option to end up in court where, depending on the state in which your parents live, interest may drop and fees may stop with a court judgment. In some states interest stops or goes to a court-appointed rate (that will be much lower than 30 percent — usually between zero percent and 12 percent) with a judgment. Any fees should end, although you may owe some legal or other costs.
My recommendation is to contact an attorney to fully understand your options and the consequences of each. In the interim you can stop the phone calls by using your rights under the Fair Debt Collection Practices Act. Request in writing that the collector or collectors stop communication with you regarding the debt. Or you may want to invest in a good answering machine to screen your calls.
Debt AdvisEr