Elderly Folks Should Discuss Their Finances With A Bankruptcy Lawyer, Too

by Adrian Lapas, Esq.

April 8, 2013

Elderly coupleIn a recent article, the New York Times stated that doctors are prescribing an unusual remedy for their older patients–see a lawyer!  The article explains that doctors are increasingly worried about their elderly patients qualifying for needed benefits such as food stamps or other available assistance.  So, doctors are referring their patients to lawyers.

So, if you are getting on up in years, why should you consult with a bankruptcy lawyer?  You’ve always paid your bills.  Your house is paid for.  You have retirement income coming in to meet your financial needs.  Life is good!

Unfortunately, it seems that a lot of the financial advice offered to elderly folks does not quite take into account all possibilities.  A bankruptcy lawyer can look down the road and see what can go wrong to try to assist you in structuring your assets in order to minimize the risk that something goes terribly wrong.  And, as Murphy’s Law dictates, “what can go wrong, will go wrong!”

For example, a couple that is getting on up in years suffers a catastrophic medical illness such as cancer.  As a result of the illness to the wife, the couple incurs medical bills totaling tens of thousands of dollars (if not more!).  In most states, medical bills incurred by one spouse are automatically attributed to the other spouse as a joint liability.  This is called the doctrine of necessaries.  These medical bills can have a major impact on your financial affairs.

So, let’s play this out.  Let’s assume an older couple and, because of cancer treatments that were necessary before the wife became Medicare eligible, racked up $65,000 in medical bills.  The couple has approximately $150,000 in equity in their home and income of Social Security benefits and a monthly income from their pension plans.  The couple is able to manage their finances except the medical bills.

So, what is this couple’s legal situation?  If the hospital institutes legal action to recover for the unpaid medical bills, depending on the couple’s state of residence, the couple’s house is at risk.  For example, in North Carolina, they could exempt up to $70,000 in equity in their home.  If one spouse passes away and the surviving spouse is over 65 years of age and they held the property jointly (usually the case), the surviving spouse can exempt up to $60,000.

Based on our example above, the hospital could have the house sold to satisfy the unpaid medical bills.  While some hospitals may not take the step of actually having the house sold, having a judgment lien in place also means that upon the couple’s passing, the children will have to sell the house in order to pay the medical bills.  This may be contrary to what the couple desire.

So, how could a bankruptcy attorney help?  By offering some suggestions of re-doing their property.  For example, a bankruptcy lawyer could engage in legitimate exemption planning if done prior to a catastrophic medical situation.  For example, the home could be deeded to the couple’s children while reserving a life estate to the couple.  This way, the couple would not lose their home.

There can be other strategies available but the key is to speak with a knowledgeable attorney before the need arises.  Timing can make all the difference.

 

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.

Last modified: April 8, 2013