Debt Forgiveness and Death — When Do Mortgage Debts Qualify?

The Court of Appeals for the state of Wisconsin recently reviewed the issue of a gift made in contemplation of death in Meegan v. Netzer. In the case, an 88-year-old man died without a will but clearly intended to forgive outstanding debt owed to him by his nieces and a great nephew as outlined in a note provided to his attorney.

Debt forgiveness is considered a gift, and in the absence of a valid will this gift can be completed post mortem if all elements of the doctrine are satisfied.

When Mortgage Debt can be Forgiven

In this case, the uncle provided mortgage loans to his relatives. Such mortgage debts can be forgiven in two ways: specific inclusion in the will or fulfillment of the elements of the doctrine of gifts in contemplation of death. This requires:

• Donor intends to make a gift effective at death
• Donor contemplated death from an ailment
• Donor died from ailment
• Gift delivered to donee

Distinguishing Meegan v. Netzer

Although the court agrees the man’s intent was clear, his death bed wish to forgive the debt could not be granted. Instead of delivering the note to his nieces and great nephew, he delivered it to his attorney in order to alter his will. His intention was not to forgive the debt with that specific note, but to produce and sign a new will granting forgiveness. In fact, the will was drafted and he had an appointment to sign it shortly before his death.

Unfortunately, he died before the will was legitimated and the debt could not be forgiven.

The non-forgiven mortgages could place the heirs into financial hardship. However, they have options to address their situation, including filing for Chapter 13 bankruptcy protection.

The intricacies of debt forgiveness are difficult. If faced with financial hardship, bankruptcy may provide needed relief. As a result, it is important to discuss options for relief with an experienced bankruptcy attorney.