Son's Filial Responsibility Nursing Home Debt Dischargeable in Bankruptcy; Not Required to Spend All of Mother’s Assets on Her Care

As previously discussed in this blog, nursing homes have devised various schemes to ensure collection of costs from family members of residents, notwithstanding a federal law making it unlawful to hold families contractually responsible as a condition of admission [the hyperlink will take you to all of the filial responsibility blog articles].  

A recent iteration of this effort includes contesting bankruptcy discharge of the debt.  One effort has, nonetheless, proved futile. A U.S. Bankruptcy Court has ruled that the judgment debt of a resident's son to a nursing home for his mother’s care is dischargeable in bankruptcy.  The Court found that the son’s failure to apply all of his mother’s income and assets towards her care did not constitute an attempt to defraud the facility. Geriatric Facilities of Cape Cod, Inc. v. Georges (Bankr. D. Mass., No. 19-01096-MSH), June 22, 2021).

In April 2010, acting as an agent under a power of attorney, Jonathon D. Georges signed a services agreement with Pleasant Bay, a Massachusetts nursing home to provide care to his mother, C. Doris Georges. The contract identified Mr. Georges as a “responsible party” and obligated him to apply his mother’s funds and assets to pay for the services being rendered to her. 

At the time the contract was signed, the nursing home’s monthly cost typically exceeded $8,000, while Ms. Georges’ monthly income was limited to $2,410.24, consisting of Social Security and payments from an annuity.

In March 2012, Mr. Georges sold his mother’s condominium to pay her obligations to Pleasant Bay, netting $247,395.03.  Mr. Georges paid $104,128.91 to the nursing home to bring his mother’s account current and spent another $63,500 on gifts to various family members, including himself.  By the fall of 2011, with the sale proceeds having been nearly all spent, Mr. Georges applied to Medicaid (MassHealth) for long-term care benefits for his mother.  At the same time, he stopped paying Pleasant Bay with his mother’s income, believing that once Medicaid was approved the balance would be resolved.  

Ultimately, the Medicaid application was denied due to the substantial gifts to family members.  Unable to reach an agreement with Pleasant Bay to settle the balance, Mr. Georges used his mother’s income that he had been setting aside to move her to another facility.  In October 2012, Pleasant Bay sued Mr. Georges in state court for the services rendered.  The case settled prior to any hearings when Mr. Georges agreed to a judgment being entered against him in the amount of $128,000, plus interest.  Ms. Georges died in 2013.

In May 2019, Mr. Georges filed a voluntary petition for relief under Chapter 7 of the bankruptcy code and included the judgment debt to Pleasant Bay in the bankruptcy schedule.  Pleasant Bay objected to the discharge of its debt, arguing that the debt was excepted from discharge because Mr. Georges had obtained the debt by false pretenses or false representations when he promised to devote all of his mother’s assets and income to pay for her care when he had no intention of doing so.  Mr. Georges countered that he had not understood or agreed that all of his mother’s income and assets had to be used to pay Pleasant Bay for her care and that he made gifts to himself and family members in accordance with his understanding of her wishes.

The U.S. Bankruptcy Court for the District of Massachusetts found that “no reasonable reading of the services agreement supports Pleasant Bay’s interpretation that Ms. Georges and Mr. Georges were contractually bound to devote every cent of Ms. George’s income and assets to pay Pleasant Bay.”  The court found that “[h]ad Pleasant Bay wanted to bind its residents to devoting the entirety of their income and assets to the payment of nursing home expenses, to the exclusion of everything else, it needed far more detailed and explicit contractual terms.”

Man Can't Challenge Discharge of Brother's Debt for Mom's Care under Filial Responsibility Law

A bankruptcy court has ruled that a man does not have standing to prevent the discharge of his brother's debt owed to their mother's assisted living facility under the state's filial responsibility law. In re: Skinner (Bankr. E. D. Pa., No. 13-13318-MDC, Oct. 8, 2014).

Dorothy Skinner lived in an assisted living facility until she was evicted for non-payment. The facility sued Ms. Skinner's sons, Thomas and William, under Pennsylvania's filial responsibility law. The court entered a default judgment against Thomas for $32,224.56. Thomas filed for bankruptcy and sought to discharge the debt.

William filed a claim in the bankruptcy court, arguing that Thomas's debt is non-dischargeable because it resulted from fraud and embezzlement. William argued that Thomas used their mother's assets for his personal expenses, so if William is liable to the assisted living facility, he is entitled to be reimbursed by Thomas.

The U.S. Bankruptcy Court, Eastern District of Pennsylvania, dismissed the claim, holding that William does not have standing because he is not a creditor of the debtor. According to the court, even if Thomas's actions injured Mrs. Skinner, that conduct was directed at Mrs. Skinner and her property, not at William. The court rules that William "may not invoke a cause of action that belongs to his [m]other to remedy the [Thomas's] liability for the Support Claim."  

Of course, underlying this case of one sibling fighting another is the liability created by filial responsibility; the siblings are jointly and severally liable.  Joint and several liability means that the creditor, in this case the assisted living facility, can enforce and collect the debt from the siblings jointly, or any one or more of the siblings severally.  If one sibling is unable to pay, the full debt falls to the other(s).  The assisted living facility can collect the full debt from any one of the siblings who is most likely to pay quickly.  Hence, one sibling seeks to stop a bankruptcy court from exonerating the other, leaving the sibling that does not file for bankruptcy solely responsible for the debt.  

Filial responsibility will only create more instances of familial discord and conflict as circumstances cast these obligations to fall inequitably among family members. Moreover, the court suggested that the Pennsylvania law does not allow for an action for contribution or reimbursement; if one family member is held responsible and another is not, the responsible family member may not be able to do anything about it.  Bottom line: parents' efforts to treat children equally or equitably will likely be sacrificed on the altar of Medicaid resource recovery in a filial responsible world. 

To read more about filial responsibility, click here, here, here, here, and here.  

Inherited IRA's are not Exempt from Creditors in Bankruptcy

In a unanimous opinion, the U.S. Supreme Court has ruled that funds held in an inherited individual retirement account (IRA) are not exempt from creditors in a bankruptcy proceeding because they are not retirement funds. Clark v. Rameker (U.S., No. 13-299, June 13, 2014).

Heidi Heffron-Clark inherited an IRA from her mother. Her inherited IRA had to be distributed within five years, and Ms. Heffron-Clark opted to take monthly distributions. During the five-year period, Ms. Heffron-Clark and her husband filed for bankruptcy and claimed that the IRA, worth around $300,000, was exempt from creditors because bankruptcy law protects retirement funds.

The bankruptcy court found that the IRA was not exempt because an inherited IRA does not contain anyone's retirement funds. Ms. Heffron-Clark appealed, and the district court reversed, ruling that the exemption applies to any account containing funds originally accumulated for retirement. The Seventh Circuit Court of Appeals reversed, holding that the money in the IRA no longer constituted retirement funds, while the Fifth Circuit Court of Appeals decided in In re Chilton (674 F.3d 486 (2012)) that funds from an inherited IRA should be exempt. The U.S. Supreme Court agreed to resolve the conflict.

The U.S. Supreme Court affirmed the Seventh Circuit's decision in Clark, holding that the funds held in inherited IRAs are not "retirement funds." In a unanimous opinion delivered by Justice Sotomayor, the Court finds that funds in an inherited IRA are not set aside for retirement because the holders of inherited IRAs cannot invest additional money in the account, are required to withdraw money from the account even though they aren't close to retirement age, and may withdraw the entire balance of the account at one time.

If you want to ensure that your IRA's are inherited by your heirs and remain exempt from their creditors, see an elder law attorney.  

For the full text of this decision, go to: http://www.supremecourt.gov/opinions/13pdf/13-299_mjn0.pdf

Bankruptcy Court Refuses to Discharge Granddaughter’s Debt to Nursing Home- Lessons for Caregivers

A U.S. bankruptcy court refused to discharge an Ohio woman's debt to a nursing home for the cost of her grandmother's care, finding there exist questions regarding whether the woman knew a gift she had received from her grandmother was an improper transfer of assets for Medicaid purposes and whether the woman intended to defraud the nursing home. In re Donley (Bankr. N.D. Ohio, No. 13-60758, April 17, 2014).

On October 6, 2011, Michele Donley signed an agreement admitting her grandmother, Virginia Carnes, to a nursing home.  She signed a second agreement accepting personal liability for the cost of services provided.  In the admissions agreement, and in two subsequent Medicaid applications, Ms. Donley denied that her grandmother had transferred any assets that might affect her grandmother's eligibility for Medicaid benefits.

Ms. Carnes, however, had gifted $50,000 to Ms. Donley in 2007, which Ms. Donley used as a down payment on a home. The gift  was determined to be an "improper transfer" thereby resulting in a transfer penalty which made Ms. Carnes' ineligible for Medicaid benefits until February 2013. Ms. Donley was unable to keep up with payment for her grandmother's care due to the period of ineligibility, and the nursing home filed an eviction action and later obtained a judgment of $17,441.50 against Ms. Donley for unpaid services.

Ms. Donley filed for bankruptcy protection, and sought to have the debt discharged.  The nursing home opposed the discharge of the judgment ostensibly on the grounds that Ms. Donley acted willfully or maliciously in causing the nursing home's loss.  Section 526 of the Bankruptcy Code excepts from discharge debts that are willfully or fraudulently procured, or resulting from willful or malicious conduct.    

Ms. Donley filed a motion for summary judgment, arguing that the nursing home lacked evidence to establish the elements of a claim, which she argued required a showing of fraud. The nursing home countered that considering Ms. Donley's multiple misrepresentations regarding her grandmother's transfer of assets, questions of fact existed about Ms. Donley's state of mind, making summary judgment inappropriate.

The United States Bankruptcy Court, N.D. Ohio, agreed with the nursing home and denied Ms. Donley's motion for summary judgment. The court determined that there existed a genuine question of fact whether Ms. Donley knew the $50,000 gift from her grandmother was an improper transfer at the time she signed the agreement and whether her misrepresentation was intentional or reckless.

There are several important lessons to take away from the Donley case.  First, Medicaid planning is an important consideration any time that a person wants to make a gift to another.  It is possible, even likely, that Ms. Donley's grandmother did not intend to make her granddaughter financially responsible for her long term care when she made the gift that permitted her granddaughter to purchase her home, but that is exactly the resulting legal and financial consequence.

Second,  caregivers, family members, and/or fiduciaries should have nursing home admission agreements reviewed by counsel before signature.  It is likely that an advising attorney would have explained the consequence of signing a personal guarantee, and absent such a guarantee, the nursing home's case would have been more difficult to prosecute.

Third, When applying for Medicaid, disclosure of all gifts must be made, regardless whether the parties intended the gifts as long-term care planning gifts, or whether the gifts might be overlooked.  The State is quite proficient at discerning improper transfers, and financial transactions, regardless the value, leave a footprint.

Fourth, counsel should be retained by caregivers, family members, and/or fiduciaries prosecuting any application for Medicaid.  Family members often reason that, since there is no value to the applicant's estate, the cost of counsel is unwarranted.  Counsel should be retained for the purpose of advising the person assisting in preparing or otherwise prosecuting the application  in order to protect his or her estate.  It is unclear what options might have been available to Ms. Donley had counsel been fully apprised of the situation (non-institutional care, mortgage, reverse mortgage, establishing residence of the grandmother in daughter's home and qualifying her care as necessary to avoid nursing home care, as examples),  but it is apparent that proceeding without regard for the ultimate possible consequence was an expensive, and possibly financially disastrous strategy.

Finally, nursing homes do evict residents.  There is a common misconception that nursing homes will always bear the financial burden of an indigent resident.  Nursing homes are not hospitals, many of which are required by federal law to provide care to indigents.  A nursing home will protect itself legally and financially, as it should for its own financial health, and ultimately for the health and safety of its residents.

Nursing homes have excellent lawyers representing their interests.  Likewise, caregivers and fiduciaries should have excellent lawyers representing their interests.  

For a full text of the decision, click here.     

Supreme Court to Decide Whether Inherited IRA's Protected from Creditors

The U.S. Supreme Court has agreed to hear a case that will decide whether inherited individual retirement accounts (IRAs) are available to creditors in bankruptcy. The decision in Clark v. Rameker will resolve a split between the lower courts.

Heidi Heffron-Clark inherited a $300,000 IRA from her mother. Inherited IRAs must be distributed within five years. During the five-year period, Mrs. Clark and her husband filed for bankruptcy. The Clarks argued the IRA was exempt from creditors because bankruptcy law protects retirement funds. A district court agreed with the Clarks, but the 7th Circuit U.S. Court of Appeals reversed in Clark v. Rameker (714 F.3d 559 (2013)), holding that the money in the IRA no longer constituted retirement funds.

Meanwhile, the 5th Circuit U.S. Court of Appeals decided in In re Chilton (674 F.3d 486 (2012)), that funds from an inherited IRA should be exempt. The U.S. Supreme Court will resolve this issue later this term.

For more information about this case, click here.

Debt Owed to Nursing Home Is Dischargeable in Bankruptcy Court

A bankruptcy court rules that a nursing home cannot claim debt owed by the husband of a nursing home resident to the nursing home is nondischargeable as a domestic support obligation. In re Langan (Bankr. Dist. S.D., Nos. ADV-13-3003, BR 13-30001, Oct. 18, 2013).

Anna Langan died owing debt to the nursing home that provided her care.  The nursing home sued Mrs. Langan's husband, Francis Martin Langan, and Mr. Langan settled, agreeing to pay the nursing home $28,000. The settlement provided that Mr. Langan would not file for bankruptcy within 91 days following the nursing home's receipt of the settlement payment. Mr. Langan filed for bankruptcy one month later.

The nursing home filed a claim with the bankruptcy court, seeking a determination that its claim against Mr. Langan is nondischargeable debt. The nursing home alleged that Mr. Langan failed to pay for his wife's care even though he had assets to do so. Under bankruptcy law any debt "for a domestic support obligation" is exempted from a debtor's general discharge. Mr. Langan asked the court to dismiss the nursing home's claim.

The United States Bankruptcy Court, District of South Dakota, grants Mr. Langan's motion to dismiss, holding that the debt is not exempt from discharge. According to the court, because the nursing home "is not [d]ebtor's spouse, former spouse, or child, and the debt did not arise from a divorce or separation agreement," the debt does not fall under the "domestic support obligation" exception from discharge.

For the full text of this decision, click here.

Bankruptcy Rising Among Elderly

Bankruptcy filings among the elderly are reaching an all-time high according to a story published by Christine Dugas, in USA TODAY. Swamped by debt and rising medical bills, elderly Americans have been seeking bankruptcy-court protection at sharply faster rates than other adults, according to a study to be released. From 1991 to 2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150%, according to AARP, which will release the new research from the Consumer Bankruptcy Project. The most startling rise occurred among those ages 75 to 84, whose rate soared 433%.

According to the article, the study does not address the specific reasons behind the trend. But experts say medical bills have played a major role in the debt that has forced many elderly Americans into bankruptcy proceedings. "Health care is a big issue for the elderly," says George Gaberlavage, director of consumer and state affairs at the AARP Public Policy Institute, “and out-of-pocket expenses have been going up,” the article reports. During the same 1991-2007 period, bankruptcy filings by younger Americans actually declined.