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Can An Incompetent Person File for Bankruptcy With a Power of Attorney?

Power of Attorney and Filing for Bankruptcy

For many families and individuals, medical problems have contributed to financial issues that now require them to file for bankruptcy. A person who has Alzheimer's, dementia, or a mental disorder, may need to file for bankruptcy, but because of their medical  or mental condition, they may not have the capacity to understand what is happening or to understand or handle their legal and financial affairs. Their family or caregivers may have taken over handling their day to day legal and financial matters. In many instances, they they have signed a power of attorney, designating that party to handle their legal and financial affairs.

The mentally disabled or incompetent individual may be faced with mounting medical bills due to their medical or mental illness or past credit card debt that they need to eliminate. The person given the power of attorney may come to the realize that in order to properly handle the incompetent parties financial affairs they must file for bankruptcy. The question is  whether having a power of attorney is sufficient to file a bankruptcy case on their behalf? The answer to this depends on whether you are considered a representative under the bankruptcy rules.

Under the Federal Rules of Bankruptcy Procedure Rule 1004.1, "If an infant or incompetent person has a representative, including a general guardian, committee, conservator, or similar fiduciary, the representative may file a voluntary petition on behalf of the infant or incompetent person". The issue is whether a person who has been given a power of attorney is considered a representative and therefore can file a bankruptcy case on behalf of the incompetent person's behalf.

Does having a power of attorney qualify the party as a representative  and allow that party to file a bankruptcy petition on behalf of the incompetent person. Again the code is not clear on this issue since there is no definition in the bankruptcy code of who is a "representative". Some courts have found that a power of attorney is sufficient to qualify a party as a representative if the power of attorney specifically provides the authority to file a bankruptcy case  In re Hurt, 234 br 1 (bkrtcy.d.n.h 1999). In some cases a general power of attorney to handle the financial and legal affairs may be sufficient to consider a party a representative.  Other courts have taken the position that a power of attorney is insufficient to treat that party as a representative and therefore require that a party be appointed a guardian ad litem or next friend.

Guardian Ad Litem and Next Friend

The bankruptcy code specifically allows the bankruptcy court to "appoint a guardian ad litem for an infant or incompetent person who is a debtor and is not otherwise represented". Depending on the position of the bankruptcy trustees and judges in your district you may need to file a motion to appoint next friend as part of the bankruptcy case. Black's Law Dictionary defines a Next Friend as "a person who appears in a lawsuit to act for the benefit of an incompetent or minor plaintiff, who is not a party to the lawsuit and is not appointed as a guardian". An order appointing you as next friend authorizes you to represent the interest of the incompetent debtor in the bankruptcy case.

As part of preparing a motion for next friend it is important that the party seeking to be appointed next friend show that they are aware of and have sufficient knowledge of the financial affairs of the debtor, that they can appropriately represent the interest of the debtor, and that the debtor is in fact incompetent.  The later will involve  providing medical letters or information that indicate the condition of the debtor. The bankruptcy code does not define who is incompetent but gives an indication under section 109 which states "incapacity means that the debtor is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities".

In Riverside, California, the recent position of the trustee's and some judges has been that a power of attorney is insufficient to qualify that party as a representative and that a motion to appoint next friend is necessary. Therefore a trustee is Riverside is likely to oppose a petition filed on the basis of a power of attorney.  It is important that you are aware of the local position of trustee's and judges regarding this issue.

If you have a friend or relative that cannot file for bankruptcy due to a mental or medical disability contact our Riverside bk lawyers to discuss your options.


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