Inheritance v. Debt - What to do?

June 14, 2009 10:09 AM

A few months ago, my father passed away, and it turns out he has left me and my two siblings each approximately $20,000. My problem is this: I have huge unpaid medical bills from the past three years - in excess of $100,000, and they are totally in default, as my ordinary income is not quite enough for me to live on without the occasional assistance of my roommate and my siblings.

In short, I live hand to mouth and sometimes come up short trying to fill my prescriptions. (I am uninsured, obviously.) I have some old student loan debt that has also gone into default over this time period.

My question is: what happens now? If I take the $20,000, which I do desperately need, won't I have to just turn around and send it all in to the medical collection agency/student loan people? Is it *legally* kosher to just refuse the money and allow my siblings to split it, to help defray their own costs of bailing me out? Is there some way to keep it? I don't want to be a deadbeat, but this money would barely make a dent in my medical bills, while it could make a real difference in day to day life.

If anyone has any ideas on how to handle this, I'd sure be grateful to know them. Any private suggestions can be sent to: [e-mail]

posted by anonymous to Work & Money (18 answers total)

You may want to have one of the mods post some information about where you are and where your father's assets are - I suspect that makes a difference.

For whatever it's worth, in at least some places, you can decline your portion of an inheritance. My mother did something like that to allow her portion of my grandmother's assets to come straight to my sister and me.

But I bet it varies by locale, and don't know how your debt might factor in. Might be worth seeing if you can find a lawyer who will do a free initial consultation to give you some idea whether it's worth hiring him/her on to sort out the whole mess for you.
posted by Stacey at 10:20 AM on June 14, 2009

I assume that medical debt is from hospitals. If so, you should try to contact them, find out how much you really owe. The $100k is what they would bill to your insurance company or medicare (if you had any). The insurance companies would only pay part of it; same deal with medicare. It is probably significantly less, and you could probably take a big bite out of it with 20k, if you used it as a bargaining chip. As far as you desperately needing the extra money, you might consider the old chestnut of finding extra income elsewhere instead.
posted by sswiller at 10:29 AM on June 14, 2009

sswiller is right on the money there, pardon the pun. Insurance companies typically pay 70% or less of what a hospital actually bills. Medicare/medicaid would pay even less than that. See what the hospital will work out with you. If you can offer a big chunk of money they might be willing to settle the debt for "less than owed." Doesn't look too great on your credit report, but at this point I don't think that's a real concern anymore.

Also, are you really in debt to your siblings to the tune of $10,000 each? If so, then letting them have it is not a bad idea - it shows you appreciate what they've done for you and ensures they'll be able to continue helping you as you need it. But if you owe them each, say $5,000 you could still let them take your part of the inheritance, but then ask them to use the remainder to pay off chunks of your debt. Your father's estate will pay the taxes on the money before it passes to them, and asking your siblings to pay it directly to your debtors avoids you having to pay taxes on it and also avoids it becoming one of your assets.

Oh, IANYL, but there was a slightly similar post a few days ago which provided some good information.
posted by philotes at 10:48 AM on June 14, 2009

Have you tried declaring bankruptcy? Medical bills are the number one cause of bankruptcy in the U.S these days IIRC. CNN says it's 60%.

The other thing about medical bills (well this is what I've heard in other AskMe threads, so I'm not sure if it's totally accurate) is that as long as you work out some payment plan, you're not in default. So you could be paying $50 a month or something.

You can use this money to pay a bankruptcy lawyer.

You could also have your siblings cash the check and just give you cash to stuff under your mattress. Illegal immigrants often store most of their money that way, rather then putting it in the bank.
posted by delmoi at 10:56 AM on June 14, 2009

You really do need to talk to a lawyer. As it sounds like you're pretty low income, you probably qualify for legal assistance. Look into legal aid clinics in your metropolitan area. Almost every city of even moderate size has at least one or two.
posted by valkyryn at 11:04 AM on June 14, 2009

You should really talk to a bankruptcy lawyer or someone who does both wills and bankruptcy. You need to find out how to go about declining the money your dad left you, and also whether that's even the best option.

I'm sure you know that student loans are not dischargable in bankruptcy unless you're 100 percent disabled (slight exaggeration but it's quite difficult.) But the medical bills on the other hand, probably are. Talk to an attorney. This is exactly why we have bankruptcy.

(By the way, delmoi, Meg McArdle at the Atlantic has a couple of excellent posts on the Warren report and why medical costs are not as large a contributing factor to bankruptcy as they seem. this post and this post are good starting points.)
posted by Happydaz at 11:08 AM on June 14, 2009

Here is a recent NYT article about negotiating hospital bills. Seconding what Happydaz said about talking to a bankruptcy and trusts & estates attorney.
posted by Conrad Cornelius o'Donald o'Dell at 11:11 AM on June 14, 2009 [1 favorite]

This is the type of question only your own lawyer should answer.

Some things to look into would be putting the $20,000 into an IRA that is beyond the reach of creditors. Many if not most retirement plans are, by law, untouchable by creditors, which is why, prior to his recent conviction for robbery, O.J. Simpson lived quite well on his pension, despite having a huge judgment against him for the wrongful death.

If you file Chapter 7 bankruptcy, the $20,000 would end up as part of the bankruptcy estate and could be used to pay creditors. Chapter 13, I believe, would allow you to keep the money but you'd have to be paying regularly as part of the reorganization payment plan. (I know hardly anything about bankruptcy, but I think those two assertions are correct---but see a lawyer.)
posted by jayder at 11:16 AM on June 14, 2009

Some things to look into would be putting the $20,000 into an IRA that is beyond the reach of creditors.

Well, but then there are limits on what you can put into an IRA. I think the limits on an IRA for a self-employed person are higher, but I don't really know.
posted by jayder at 11:18 AM on June 14, 2009

The real question for you is if there is a judgement against you, and the resulting garnishing of wages. And if so, how does it handle windfall money like this?

It's quite likely that they can't take the money forcibly, all they can do is keep harassing you, although student loans are able to take more from what I hear.

So, talk with a lawyer, have them look at the situation, and see if you can't just take the money, live off it, and tell the creditors to suck it.
posted by cschneid at 11:19 AM on June 14, 2009

I work in a hospital and it is not unusual to offer massive discounts to individuals who agree to make a cash payment. Recently we had a man with a $120,000 bill and the hospital reduced it to $10,000 right there on the spot when he agreed to write a check. I would try it. Maybe you can keep half of the money.
posted by OneCrayon at 12:27 PM on June 14, 2009 [4 favorites]

Bankruptcy lawyer NOW. If you think you might want or need to file bankruptcy any time in the next few years, you need to be very careful about refusing bequests, giving preferential payments, or anything else that can be seen as trying to defraud your creditors. A bankruptcy lawyer in your jurisdiction will be able to advise you about the relevant look-back periods.
Doing anything in this case without knowing the legal ramifications can cause you serious trouble if you file for bankruptcy; it can result in dismissal of the bankruptcy or even jail time and penalties. This is not something you should be taking internet advice on. Talk to a lawyer who will be bound by confidentiality and who you can tell all the details of your situation.
posted by katemonster at 1:20 PM on June 14, 2009

I must encourage you to see a legal aid attorney--as if Medicaid is involved it gets dicey.
posted by Ironmouth at 2:30 PM on June 14, 2009

I also think you should try to negotiate with your creditors for the $20k. Whoever you owe the most to, see if they will take the $20k as full payment-- as sswiller and OneCrayon said.

Also, this group can help give guidance on medical debt crisis. I would call them and see if they have advice for you.
posted by ishotjr at 2:45 PM on June 14, 2009

Heads up: The IRS can swipe money out of your checking and/or savings account; just happened to a friend of mine. So if you've any debt to them, be careful where you put that bread...
posted by dancestoblue at 4:02 PM on June 14, 2009

Definitely seconding "talk to a lawyer", but if I was in your shoes, I think my strategy would be finding out some way of hiding this money until your current troubles are over. No point in taking it now if you're just going to lose it all.
posted by glider at 7:55 PM on June 14, 2009

Offer the hospital $20K as total payment for your outstanding expenses. Not having that over your head has got to make some sort of difference to your 'day to day' living.
posted by obiwanwasabi at 4:42 AM on June 15, 2009

Check lawhelp.org and see what resources are available for low-income people in your area. It's pretty comprehensive in NY; don't know how it is elsewhere.
posted by Mavri at 11:40 AM on June 15, 2009