This article is a section taken from MA for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability (MA-ABD), a part of the revisions and additions to the Minnesota Health Care Program Eligibility Policy Manual.

Promissory Notes

A promissory note is a written, unconditional agreement whereby one party promises to pay a specified sum of money at a specified time (or on demand) to another party. It may be given in return for goods, money loaned, or services rendered.

This section provides policies that apply to promissory notes. The evaluation of promissory notes depends upon whether the person is a seller (creditor) or a buyer (debtor) under the agreement.

Creditor (Seller)

For the owner of the agreement (the seller), a promissory note is a liquid asset. The property itself is not an asset because the seller cannot legally convert it to cash while it is encumbered by the agreement. If payments received by the seller consist of both principal and interest, only the interest portion is income. The principal portion is the conversion of an asset so is not income.

Debtor (Buyer)

For the buyer of the property (debtor), the promissory note is an encumbrance against the real property, not an asset. However, the property purchased may be a countable asset in the month following the month of the transaction.

Purchase of Interest in a Promissory Note

The purchase of an interest in a promissory note occurs when a third party person buys the right to receive payments under the promissory note from another person or entity.

The purchaser of an interest in a promissory note takes the place of the seller and becomes the creditor (owner) of the promissory note. This is considered a conversion of assets for the seller and the interest of the payments is income for the new creditor.

Evaluation of a Promissory Note

The value of the promissory note is an available asset unless the person provides evidence of a legal bar to the sale of the promissory note.

The value of the promissory note is assumed to be its outstanding principal balance in the month for which the determination is made unless the person provides an estimate from a knowledgeable source (bank or commercial credit institution, etc.) demonstrating the market value of the promissory note is less than its outstanding principal balance. An amortization schedule can be used to determine the outstanding principal balance and the interest income if the terms of the agreement are known.

Legal Citations

Minnesota Statutes, section 256B.056, subdivision 1a

CREDIT: The content of this post has been copied or adopted from the Minnesota Healthcare Programs Eligibility Policy Manual, originally published by the Minnesota Department of Human Services.

This is also part of a series of posts on Minnesota Healthcare Eligibility Policies.