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I really like the suggestions from igloo572!
1. Mom may get a 1099-C on the 55K. 1099-C's are totally loco to deal with as it is a whole new level of zombie debt. It will come from the original creditor and could be more than 55K as they can tack on all fees, late charges, etc. It does not have to be done in the year the debt was forgiven either. It could come in 2015 or 2016 taxes. IF MOM GETS A 1099-C YOU HAVE TO FILE TAXES FOR HER for that year. IRS views 1099-C (cancellation of debt) as income. And for more fun, income that taxes are to be paid on too. Now you can do a whole impoverishment filing for her that will wipe out the debt to satisfy the IRS, will run about $ 200 - 300 for a CPA to do (any you have 2K in her "asset" to pay for this). You do need to do it because otherwise it could show up as "income" if your state does an IRS / Medicaid matching & could possibly pose a problem for Medicaid as mom has 55K " income". Yeah totally whack.
2. Debt collectors - If the 55K is still with the original creditor (VISA, AMEX), they will write it off. Usually within 6 months and it will be sold to debt collectors and resold and resold. My late MIL was a financial terrorist and we had to deal with their stuff with her, she just blithely went on for years running up debt. The debt collectors will be relentless and you have to decide just how to deal with all this. What we did was get a rented mail box for everything MIL debt to go to. UPS stores have rental boxes and they have a nice street address. Get one (pay out of mom's funds too) and send a change of address to every creditor mom has. Also you might think of having everything for mom sent here. This way you go once a week, twice a month, whatever works for your sanity and get all her mail and deal with it. You can kinda expect the debt collectors to work her account for a couple of years so whatever you can do to distance your & your wife's credit from her's is best. We sent letters that clearly stated that any & all communication had to be sent in writing (to the new mail box) and that no phone calls were to be made due to her limited cognitive state. Sent the letters certified mail with return registered receipt. If they already have your cell & home number, you just have to stay calm & direct and tell them that this is not mom's phone and all communication must be in writing and then hang-up. You and your wife have to both be consistent on this.
3. Mom's income - SS is protected income. No debt collector even if they get a judgement can attach mom's SS income. It is federally protected (also most retirements too) from seizure. The only thing that can attach SS is the IRS. Another reason why to deal with the 1099-C if that happens. Mom has to use her SS as her required co-pay to the NH, so you don't want to do anything to jeopardize her status @ the NH.
Good luck, try not to get too overwhelmed and remember to make the time for a "date night" with your wife.
Mom has approx 70K right?. Ok so what is the maximum amount allowed for mom to have as an asset for Mass Medicaid? Most states have "assets" at 2K so lets set aside 2K for this. Mom now has 68K and she pays NH 11K. You do need to make nice with the NH and ask if there is anything else that could have been overlooked on the bill and pay that too. So after NH old bill Mom now has 57K. Lets plan on setting aside 2 or 3 months to private pay for her NH. Mass is east coast so it is high…lets say set aside 30K for 2 -3 months. The 60 -90 day to get all there rest of her money spent, moved, changed etc and cleared through her bank statements. So now 27K for mom.
Mom needs to do a 27K spend down asap. If she does not have a prepaid NCV funeral & burial policy, you need to do this first imho. Most states have this set at a max of 10K. Personally I think the whole funeral stuff is a waste of cash but carefully think of just what you need to do to make mom's final something you can live with for the least amount of money (without nuclear fall out from family) So lets say, you can get funeral & burial done for 7K. When you are at the funeral home, see if they can do a small term policy of 1K - 1,500K for unanticipated funeral costs. Now it may cost $ 700 / 800 for a 1K policy (as she is old) but most states allow a small funeral fun to be an exempt asset. And really there will be some costs - floral, policy escort, etc - that is not included in the policy so why not set $ aside for this now. Oh NCV is no cash value - anything you do in the spend down has to be NCV including the insurance policy. Make this your mantra.
So mom now down to 19K. If mom needs any dental work, now is the time to do this. Dental alone could be all the rest of the money. For my mom, it was thousands upon thousands of dental work and really it was worth it. Medicaid does not pay for any dental so it's really now or never for her to have the funds to get dental done. I would get her duplicate eyeglasses and hearing aid too as these just frickin walk out of their room at the NH. She could get a nice walker too - the ones on Medicaid are dreck. If still money left and there is any legal loose ends for her, use her funds to update her legal (yeah pay the attorney). If still money left, if she is a avid reader get her several large print subscriptions. Mom is now at zero in her spend down. Champagne all around!! Will do another post on the debt.
I think that they are most likely stalling, thinking they may get the full amount if mom passes soon. It is also my understanding that many collection companies purchase the delinquent accounts from the creditor for the right to collect the debt. Then the creditor is no party to the settlement of the debt. They probably bought this $55,000.00 debt for less than $5,000.00. That is a pretty darn good return on their investment! I would start probably with sending a check less than the $5,000.00 to see if they will deposit it. Check with your attorney before you do this. If you want to put your question out there to a variety of attorneys, receive responses at no charge, check out the website AVVO.