Can Legally Incompetent People File Bankruptcy in Indiana?

March 25, 2012 11:43 am Published by

Immediately after my article appeared last week discussing minors filing personal bankruptcy in Indiana, the phone started ringing at two of the Zuckerberg bankruptcy law offices.  Several Bankruptcy in Indiana readers were calling about situations involving a minor child, but another wanted to know whether an adult who is legally incompetent and who has a guardian can file individual bankruptcy in Indiana as well.

The answer is yes.  In fact, in all my years practicing Indiana bankruptcy law, I’d say filing on behalf of legally incompetent individuals is more common than filing on behalf of minors.

By way of setting the stage for explaining how the new bankruptcy laws of Indiana apply to debtors who are legally incompetent, let me offer some basic facts:

  • The U.S. Bankruptcy Code itself does not specifically define “incompetency”.
  • However, the Code does talk about “legal capacity” in discussing the credit counseling that is required in order to file.
  • When it comes to incompetent debtors, it will make a difference what type of bankruptcy is being filed. If an incompetent debtor is filing bankruptcy Chapter 7 in Indiana (using a representative), the same rules would apply as would normally be the case. 
  • However, if the incompetent were to file under Chapter 13 bankruptcy law in Indiana, things would be more problematic.  That’s because a Chapter 13 three to five year debt repayment plan would be dependent on the debtor having continued income from work to support the payments.

Just as readers wanted to know how it could come about that a minor would incur enough debt to file personal bankruptcy in Indiana, I’m sure some questions are in your mind about legally incompetent filers.  Imagine this scenario…

A year ago, “Bob” had a job and was making regular mortgage and car payments, also paying a little more than the minimum monthly payments on his three credit cards.  Then an auto accident left Bob severely disabled, both mentally and physically; he can no longer work.  He’s being sued by the owner of another car involved in the accident.  Bob’s own medical bills exceed his insurance coverage, and he’s fallen behind on his mortgage payments.  Bob’s short-term disability insurance has run out.  Bob is not married, and his brother has just been appointed his legal guardian.

Filing personal bankruptcy in Indiana cannot restore Bob’s health, but it can stop collectors from making Bob’s brother’s life more of a burden.  Filing bankruptcy can “clean up” the financial picture, so that Bob’s brother can focus on getting Bob the ongoing care he will need. In other words, bankruptcy can help legally incompetent individuals “buy time” to put together the pieces of their shattered lives.




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This post was written by Mark Zuckerberg

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