My Parent is Incompetent and Needs Bankruptcy

May 1, 2013

Older people can face many challenges, physical, mental, and financial. When your parent is no longer able to care for himself, you may also discover a financial mess. In some cases it makes sense to file bankruptcy, but what if your loved one is not mentally competent to make financial decisions for himself?

Rule 1004.1 of the Federal Rules of Bankruptcy Procedure states that if an incompetent person has a representative such as a guardian, committee, or a conservator, a voluntary bankruptcy petition may be filed on their behalf. If an incompetent person doesn’t have a guardian or representative, the court may appoint one. The court may also make other orders to protect the debtor.

Bankruptcy courts have taken different stances with regard to whether a Power of Attorney is sufficient to file a bankruptcy petition. The Bankruptcy Code is silent as to whether someone can file a bankruptcy case on behalf of another person, but, as a general rule, bankruptcy courts are reluctant to permit a third party to file a bankruptcy. Bankruptcy courts fear abuse and complications from incomplete or inaccurate information from a third party. In many cases bankruptcy courts have not accepted a power of attorney as sufficient to file a bankruptcy case unless that power was specifically granted in the instrument.

Obtaining guardianship or conservatorship for your loved one prior to filing is the clearest path to bankruptcy success. In most cases, a Chapter 7 bankruptcy will take around four months without complications. On the other hand, if the bankruptcy court decides to consider the propriety of a power of attorney, the case may become very complicated, may take many months to complete, and may even get dismissed if the judge decides that the power of attorney is not sufficient.

If you are considering a bankruptcy for your incompetent loved-one, speak with an experienced bankruptcy attorney. Your attorney will explain your options and help you choose a course of action that will provide the needed relief with the least amount of trouble.
 

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