There’s quite a bit of research on the effects of debt on mental health, and there’s some interesting research on how filing bankruptcy can help remedy debt-related health problems. This literature, however, focuses on the stress debtors face due to debt itself rather than on debtors who have serious mental health problems and who also happen to have a lot of debts. That is, what happens to debtors who have suffered serious injuries that impair them from making sound financial decisions? Or, more commonly, what happens when elderly debtors can no longer manage their own finances? The answer is that family members or other concerned individuals who wish to step in can do so, but the process is more complicated than just bankruptcy.
The first step begins in state court: obtaining a guardianship over the mentally distressed person. A guardian is someone who is legally authorized by a court to make decisions for another person. A “guardian for property” is empowered to make decisions over the person’s finances. (By law, a parent is considered a child’s “natural guardian.”) New York’s judicial system for approving of guardianships is peculiar because it gives Family Courts jurisdiction over minors’ persons and Surrogate’s Courts jurisdiction over people’s property. Consequently, most people concerned about a seriously mentally ill debtor will petition for a guardianship in Surrogate’s Court. They may want a guardianship over the debtor’s personal decisions as well, e.g. medical decisions.
Once the guardian is up to speed on the debtor’s finances, he or she may want to consider filing bankruptcy on the debtor’s behalf. The difference between this type of bankruptcy and a personal bankruptcy is that the guardian is not seeking a discharge or repayment plan for his or her own finances but of the debtor’s. The guardian signs the petition on behalf of the debtor.
Importantly, a guardian has the authority to decide which chapter is best for the debtor. Although chapter 7 is probably best in most circumstances, there can be situations where other chapters, like chapter 13, are appropriate. The guardian must perform all the actions that would otherwise be required of the debtor (except working to generate income for a chapter 13 plan), which includes providing all the debtor’s information to his or her bankruptcy lawyer and producing a repayment plan. The bankruptcy may then need to be approved by the Surrogate’s Court.
Obtaining a guardianship is a very serious responsibility, so those considering it as an option should read the New York Courts’ “Guide to Guardianship” to learn more about their obligations. It can be found here (pdf).
The Federal Rules of Bankruptcy Procedure also allow for physical and mental examinations of persons, which can include a debtor if the situation is warranted. The rule follows the procedure for civil cases in federal courts and can be found here.
If you care for a seriously mentally ill debtor who also happens to have significant debts, it’s especially important to hire an experienced New York bankruptcy lawyer to help distribute the workload. Shuttling between courts is a lot of work and should not be done alone.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
