A signed POA lets you handle a loved one’s financial and legal matters.
As a power of attorney are you responsible for debt?
As an individual with a power of attorney, they should not be held responsible for debt or other financial troubles unless those difficulties result from dishonest or grossly irresponsible acts on your part.
Power of Attorney Does Not Make You an Account Holder
A reader serving as a POA for her mother was told by a debt collector that she might have to pay if her mother couldn’t. Is this true? In most cases, no.
Your responsibility as a POA doesn’t usually make you personally liable for the debts unless you’re a cosigner on the accounts.
Power of Attorney Gives You the Right to Make Financial Decisions
While you don’t have to personally cover the principal’s bills, as a POA, you have financial responsibilities.
You act as an agent and fiduciary for the principal, managing their money, assets, and debts.
Your decisions affect their life, so it’s crucial to understand and make appropriate choices.
Basic Duties of an Attorney-in-Fact
As an attorney-in-fact post-POA, you have four duties according to Consumer Financial Protection Bureau guidelines:
- Act in the principal’s best interest.
- Carefully manage the principal’s money and property.
- Keep the principal’s finances separate from your own.
- Maintain accurate records of transactions made on the principal’s behalf.
Regarding unpaid debts, if the principal can repay them without undue financial burden or risk, it’s usually in their best interest.
But what if they lack the funds?
Consequences of Choosing Not Pay a Debt
If you stop paying and communicating with a creditor, expect:
- Delinquent accounts.
- Eventual charge-offs.
- Possible sale to a third-party debt collector.
- Debt collector attempts to contact the principal.
- Potential credit score decline.
- Legal action and potential lawsuits.
- Garnishment of future earnings.
As an attorney-in-fact, consider the consequences and choose the best path for the principal.
For elderly individuals, credit score impact may not matter much. Some may even be “judgment proof,” making payment unnecessary.
Remember, the POA doesn’t make you liable for the debts.
Consult an attorney for significant disputes, especially when dealing with protected income sources like Social Security benefits.
They can assess the consequences of nonpayment.
Always Communicate with Creditors
As the attorney-in-fact, you’re the contact point for the principal’s debts, but you’re not financially liable.
Creditors can collect owed funds but can’t harass you. Know your rights when dealing with debt collectors.
For the principal’s and your benefit, communicate with creditors and keep records.
Transparency is crucial when handling someone else’s finances.
Consider a debt management plan (DMP) if struggling with unmanageable debt. DMPs offer lower interest rates and budget-friendly payments, potentially saving thousands.