Need info on disabled sister defaulting on credit card.

Here’s the likely scenario & there can be “phantom income” issues:
- As you already know, Sissy will default on this CC & any other debts as she has mandatory Share of Cost of her monthly income (SSDI) paid to the facility for her to be on that LTC waiver program.
- all Sis will have is that $50 a mo Personal Needs Allowance. If facility has become her representative payee for SSA, they will make sure that $50 is held in an at-the-facility (trust) account to use for incidentals (beauty shoppe) and the account never goes over the 2K max. If you are dealing with this, you too have to make sure her bank balance never goes over 2K and she pays the SOC.
- abt 3-6 mo non-payment point, the CC company - the Original Creditor (OC)- will write the account off & send Sis a letter as to this. OC won’t go to court and seek a judgement, unless amount significant. IMPT: the OC will write the debt off for their own biz tax filings. This becomes mucho importante in the future, more below.
- OC will sell delinquent account to debt collection company #1 for pennies on the $. That co will then send out a 30 Day demand letter to pay it off in full along with various other threats to Sissys known addresses. Plus phone calls as well. If your name or address or phone is tied 2 Sissy, this crap will come to you. Relentlessly! Debt collectors are true bottom feeders and will do whatever to assign the debt to you. Do not do anything to acknowledge the debt as these guys will attempt to use it against you.
- maybe 2-5 months later, bottom feeder #1 sells it to an even lower debt collector. Rinse and repeat till whenever it gets way past Statute of Limitations on unsecured debt is for Sissys State.
It’s on you how you want to handle this. If Sis is disabled but not with dementia, you can help her do a letter with her signature that states: “I am unable to pay on this debt as I am on SSDI with no other income and no assets living in a care facility and am judgement proof in my understanding of the Federal regulations for SSA income. I have no phone, so any future contact must be in writing.” Mailed certified USPS. Rinse and repeat to each new bottom feeder collection outfit. If you want to be creative in the management on this, you can rent a mail box and use that as Sis new address for everything for her.

- BUT BACK to the OC: when OC writes off debt, it will produce a 1099-C issued to Sissy with her SS# and whatever address was last on file for her. 1099 issued the year the biz files that debt off their books; so could be 2025 taxes but could be 2026 tax year. 1099-C will be the balance, interest, fees & whatever else they can pile in. (30K CC balance could become $33,210). The 1099 is submitted to the IRS as well. IRS considers this to be fully taxable income for Sissy. Again, the amount in the 1099 is “phantom” but taxable income for Sissy!!!

HERE’S THE PROBLEM: the IRS is a supercreditor so they can actually attach a deduction from SSA $ to pay taxes owed on that 1099-C income. Problem is any deduction from her SS $ means she is not complaint for Medicaid waiver rules. Neither you or Sissy want this to happen. It can be solved by Sissy’s filing of IRS 1040 plus IRS 982 (Discharge of Indebtedness). It’s more of a CPA or tax pro to do this imo. But removes phantom income from ever being a problem.

fwiw 1099-C can also pop up as income if - IF - your State does IRS matching, so makes a person look “over resourced”. This isn’t so much of an issue for those in facilities, more of an issue for those on low income household programs. So that IRS 1040 + 982 needs to be done to quash this as an issue.

Depending on how much debt was defaulted and when a biz wrote it off for their own taxes, it could be more than 1 tax year that need this done. Not fun!

Just so everyone understands, an attempt to serve you has to be made, to say if they can't find you means they can't serve you, no worries, WRONG, they would petition for alternative service, which means posting a notice in some newspaper that is in your area to notify you that you are being sued. This qualifies as you being legally notified and a judgment can be made against you. Hiding doesn't help.

I don't know if this would affect wearyjeans sister, it could is the point. Heck, it might not effect her even with a judgment but, we can't stick our heads in the sand and hope it works out.

All of the advice to just ignore it, they can't find you, you can't be served is just not right. The law is very specific about these things.

As far as it being expensive for the credit card company, they don't do this one at a time, it is a stack of defaults, and because many people believe if you do nothing they can't touch you, it is usually minutes before a judge rules in their favor because you didn't show up. They can do hundreds in an hour of time, the law defaults to a ruling in the plaintiffs favor without someone showing up to fight.

You don't need an attorney, you need the documented proof that their is justifiable reasons for the court to rule against the plaintiff, such as only income is SS or SSD, the person is on Medicaid etc. Courts are very helpful in this. There is nothing that says we need an attorney when going before a judge, especially not in a situation like this.

I want to add, this situation is a much smaller amount then some of the questions we have seen about credit card defaults, some have been in excess of 25k. I know that some questions have been because there is the intention of running up a credit card with no intention of ever paying it, so let the information on this thread serve as a warning.

I am not guessing at this information or hoping that Google is telling the truth. This is 1st hand knowledge about how this works, please, anyone reading this, don't get caught out be believing you can hide from it or just ignore it. Dealing with this stuff to a DONE will empower you and relieve more stress then you can imagine

I would not worry about the credit card until they take legal action. Then you get a lawyer to drawl up a letter stating that Mom is now on Medicaid and has no assets other than her Social Security and that now goes to offset her care. I would not call the CC company and give them my phone# or address. You are not responsible for this debt. They can't get blood from a stone. They can't serve her if the have no updated address.

It cost the CC a lot of money to take a debt to court. It will go to collections first. Collection agencies buy the debt. So you are working with them, not the CC company. Again, it cost to go to court. When they find out the person is in a home under Medicaid, not worth even taking to Court. They can't get a judgement when SS is all a person receives.

Don’t call the credit card company. This woman is on Medicaid. She has nothing to pay said credit card with already. Ignore the aggressive Indians that call.

Wearie, you can call the credit card company yourself. You will need to plan a couple of hours because no is not an answer you are willing to accept, keep escalating the matter until you get someone that can actually make decisions. Have a bottom dollar amount and a payment plan ready. If you can pay today, they usually give better discounts. Record the call and get the agreement in writing before you pay a penny, if you go that route.

If you make it clear that they will not get anything without a lawsuit, which isn't a guaranteed win for them, you may be able to pay .10 on the dollar.

I would definitely encourage you to verify what amount can mess your sister's benefits up. Speak with the social worker and ask them for help. Be honest about what is going on, they may have ideas.

I think one thing that people forget, if the CC company files a 1099 and there is no money to pay any taxes that might be owed, well, that just became a federal government debt for unpaid taxes and no source of income is judgment proof against them.

I am not trying to freak you out, I am trying to give others a heads up on how this actually works. Ignoring these things seems to be standard advice and it is so detrimental to do that.

This will all work out, sadly, it means more effort for you to rectify a situation that should have never been. But, you'll get it right.

Thank you all for your answers. This is very good food for thought.

No, she is not very competent with financial things. I did not cut off her access to the credit card before now because she had received inheritance from my mother and father‘s estate. She used that to pay for the balance of her two-year commitment to her AL facility in order to qualify for the assisted-living waiver. Most every cent of her inheritance plus her SSDI checks went to the facility and basic needs; I still ended up paying for her last month.

So until now, there would have been money to pay the credit card—and I would have ended up paying another month for her AL. :(

So there truly is no money. I will consider carefully what to do. I am so worn out from the last years; I don’t need another battle.

yes, I think much of what she has paid has gone to cover fees and interest. I wish my lawyer would have stayed engaged with me just a bit longer; perhaps he could’ve arranged a settlement for maybe half or a third of the total she owed. I’m at a point where I would pay that just to be done with this mess. A very hard couple of years.

One thing I would caution everyone about; if you are getting legal notices about credit card debt, they will automatically WIN a judgment against you in court if you do not respond. You MUST respond!

When they get the judgment they can go for collection or they can send a 1099 tax form to the debtor, this will show up as income to the named debtor and could very well cause problems with medicaid eligibility.

If the money isn't available for legal representation, write letters and show up with the proof that there is no money and a vulnerable persons well being is at stake if CC company prevails. Your sister would be severely injured if she lost the government aid to keep her safely housed and cared for. The court needs to know this to rule for her.

NEVER IGNORE a legal document, it will bite you hard.

The credit card will need to take the hit. Do not put an address change in at the PO. I did this with Mom hoping some of the junk mail would not follow, wrong. Somehow the junk mail came to the new address. On-line search showed that Moms address change had made it on-line too. Medicaid and Medicare are the only ones who need her new address and people wanting to send her cards. This way the Credit Card only has the old address. It should then be sent back with "forwarding address unknown".

Be aware that sister does not really owe 6k. By paying the minimum, she may have just been offsetting the interest, the principle was not even touched. One of my cards is over 25% a year and I have good credit. But I pay it off monthly so never negotiated for a lower rate. So most of that 6k is interest and maybe late fees. As said ignore it. If you happen to get a call from a collection agency, tell them she is in a facility under Medicaid. That should stop the calls.

Phone, set it up with parental settings. She can call only certain people and only certain people can call her. Drum into her she is not to answer any phone# that is not in her contact list.

Don't do anything. Don't contact the cc company. If your sister complains when her card is shut down, just say "oh well" and change the subject.

You say you have POA.
Problem I see here is that nowhere do you say your sister is mentally disabled and unable to do her own financial management. Were that the case you would have already removed the credit card.

At this point I cannot imagine her being able to pay the bill.
Your sister has no money.
Her SSI cannot be touched by creditors, so this will just go unpaid, eventually they will cut off the credit card, and her credit (HAPPILY ) will be ruined, so that will be the end.

In short, my advice is, do nothing. And whatever you do you need NOT to pay money yourself in your own name, as that would be assuming the debt, and they would come after YOU for payment.

Don’t worry about it at all. The only thing they can do is ding her credit, but who cares?

Relax! The debt is uncollectable, please don’t even think about paying anything towards the bill. You really don’t have to do anything here, what the lawyer told you is correct. You may want to get sister a new phone number and “burner” or untraceable phone if she uses one. If you’d like you can contact the credit card company and tell them your sister is incapacitated and unable to pay, but it may not matter much, they likely will sell the debt to a collector. This is why you would want to get a private phone number for her to avoid the harassing phone calls. Just ignore the letters and court summons, she is exempt from being required to pay at this point.