Managing a loved one’s debt via Power of Attorney

The following is provided for informational purposes only and is not intended as legal advice.

Ask the Experts: Does Power of Attorney mean I'm responsible for their debts?

My mom is in a nursing home. She’s on Medicaid and has credit card debt. I wrote each company advising them of her situation. I was told that because I am her Power of Attorney I have to pay her debts. These are not joint accounts with me. What do I do if they keep calling me for the debts? –Cathy

Hi Cathy –

First thing first – if you are not named anywhere on the accounts in question, chances are good that you are not personally responsible for repaying them. Since you mentioned that these are not joint accounts, I’m operating under the assumption that these accounts are your mother’s sole responsibility.

This means that you are not expected to pay these debts out of your own pocket. Your credit and the rest of your personal finances will not be impacted by these debts, whether they are paid or not.

This does not mean, however, that you are no way responsible for these debts. Because of the Power of Attorney, you are serving as an agent and fiduciary for your mother. That role makes you responsible for managing your mother’s money, assets, and debts.

Acting in the principal’s best interest

According to the guidelines created by the Consumer Financial Protection Bureau, an attorney-in-fact has four basic duties. They must

  • Act in the principal’s best interest;
  • Manage the principal’s money and property carefully;
  • Keep the principal’s money and property separate from their own; and
  • Keep good records of all transactions made on the principal’s behalf.

So what’s in your mother’s best interest?

If your mother has the funds necessary to repay these debts without causing an undue financial burden or potentially putting herself at risk, then using those funds to repay the debts is probably the fastest, easiest way to resolve the issue.

That said, it sounds like repaying these debts may be difficult, if not impossible.

Choosing not to pay

If you simply stop making payments and cease communications with the creditor you should expect the following:

  • Accounts will go delinquent
  • Accounts will eventually be charged off
  • Charged off accounts may be sold to a third party debt collector
  • Debt collector will likely attempt to contact responsible party via mail and telephone
  • Credit score of account holder will likely plummet due to delinquencies and charge-offs
  • Collector may take legal action and sue account holder for defaulted debt
  • Account holder may have a garnishment placed against future earnings

Given the situation, you and your mother are probably not overly concerned about her credit score. The bigger concern is if your mother’s debt is large enough to warrant the collector taking legal action.

Your best option is to speak with a qualified attorney before making any decisions regarding your mother’s debts. Because some sources of income (such as Social Security benefits) are protected from garnishment (to an extent), there are certain instances where account holders with limited assets and protected income are advised to stop making debt payments. An attorney is best suited to help you understand the potential consequences of nonpayment.

Communicating with collectors

Now, getting to your actual question, what do we do about all these creditors contacting you?

As the attorney-in-fact, you are the point of contact for these debts. Creditors have a right to attempt to collect the funds that are owed. They don’t, however, have a right to harass you.

If you’re still trying to work through how you’d like to handle these debts, a good step is to send a certified letter to each company asking them not to call you, but to only communicate via mail. This will at least stop the calls.

If you’ve decided that it’s in your mother’s best interest to take no action and make no payments, then you can send a certified letter requesting that they cease all communications. This will stop all future letters and calls related to collecting your debt. The collector will still be able to send you letters advising you of changes in the status of the account (specifically if the account is sold to another agency, or if the collector begins legal action on the account).

Whatever you end up doing, be sure to keep a record of all communications and transactions. When handling someone else’s funds, it’s best to be as transparent as possible. Good luck!

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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