Durable Power of Attorney and Bankruptcy: What You Need to Know

Sometimes, situations like a potential bankruptcy client are out of town, hospitalized, or cannot attend the necessary court date for the bankruptcy filing or sign the relevant paperwork. Often these clients have a durable power of attorney (DPOA). A DPOA is a legal document that a principal creates and signs to authorize an agent to manage their assets and money. The DPOA enables comprehensive financial accountability, allowing actions like banking transactions, investment management, and handling debt-related matters, including filing bankruptcy. It ensures the agent makes vital decisions and guarantees the legal and financial continuity of the principal’s estate.

An Overview of Durable Power of Attorney and How It Works?

A power of attorney is a lawful document that binds an attorney-in-fact or agent and the principal. It is used when the principal has a permanent or temporary disability or illness or cannot sign necessary documents. The parties should sign the relevant paperwork, and a third party is required to witness the process.

You must make your POA while you have a sound mind. Suppose you do not have a durable power of attorney and become incapacitated. In that case, the court will appoint a conservator, who does not have to be your relative to manage your financial matters.

While you can name anyone to be your agent, it is advisable to choose a person with the relevant financial knowledge or experience in financial assets management. Your financial agent should also be able to handle financial institutions like banks.

You can always change your agent, provided you are not incapacitated. If you have a DPOA and want to make changes, you should revoke it and notify your previous agent that you no longer require their services.

Unlike other kinds of POAs, a durable power of attorney (DPOA) remains effective even when you are incapacitated and cannot handle matters on your own.

DPOA grants the agent several key powers, giving them significant responsibilities. The powers may vary depending on the person’s requirements and preferences. They can include the following:

• Property management — It is the authority to purchase, sell, rent, and manage assets.
• Financial transactions — The designated agent can perform banking transactions, including making deposits, writing checks, and processing other related transactions to preserve the principal's economic stability.
• Making investment decisions — The designated agent can purchase, sell, and oversee bonds, stocks, and other securities, helping maintain and increase the principal’s investment portfolio based on stated preferences.
• Filing tax returns and managing loans — Tax filings and handling loans can involve borrowing credit or overseeing existing debt to ensure legal compliance and financial well-being. It can also include filing for bankruptcy.
• Seeking legal and expert assistance — The power to employ and interact with lawyers and accountants, among other professionals, helps the agent maintain or deal with the financial and legal implications of the principal’s affairs.
• Charity and gifts

You, the principal, can customize every power you grant through DPOA to align with your requirements and needs. It ensures the agency manages your estate as you would when you do it yourself.

Unless you authorize otherwise, the DPOA becomes effective once you sign and notarize it.

The POA automatically ends once you die. Moreover, it ends if you revoke it, the court declares the document invalid, or there is no agent available.

If you named your partner your agent, the designation ends once you divorce.

The DPOA is automatically revoked once the principal passes away. Here is the procedure to revoke a DPOA:

• You should establish a written record to invalidate the current DPOA. A seasoned attorney can offer professional assistance during the procedure to ensure that your revocation paperwork is valid.
• The law requires the revocation to adhere to the original DPOA's legal requirements. Therefore, you should analyze the original POA to ensure the fulfillment of all requirements.
• Sign the relevant legal paperwork in the presence of a notary
• Next, send a copy of the signed DPOA revocation to the designated agent and every third party involved in the original DPOA procedure.
• You can serve the DPOA revocation either personally or through certified mail. Ensure you have a return mail receipt; it proves that all involved parties received the document.

How to Create Your DPOA

Discussed below are guidelines for making your financial DPOA.

Creating Your DPOA Using California’s Statutory Form

The state has a statutory form with blanks to fill out to make the DPOA. Your lawyer should guide you through the questions to make a document that suits your needs.

In the form, you will find a statement saying, “This POA will remain effective even though I become incapacitated,” making it a DPOA.

Creating a DPOA involves granting the agent every power or choosing from a list of powers you want to grant the agent. You can extend or limit the agent’s power if the typical list does not suit your goals.

Signing Your DPOA in Front of Two Witnesses or a Notary Public

For your DPOA to be valid, it must be notarized.

You can also decide to have two witnesses instead. However, it is advisable to have the DPOA notarized. If you select witnesses, they should be above 18 and cannot be agents in the DPOA.

Store Your Original DPOA in a Safe Space and Give Your Agent a Copy

After creating your DPOA, preserve the original copy in a safe space where your relatives can easily find it.

Additionally, you should give your agent a copy of the document so they can read it and use it whenever required.

Give a Copy of the Document to Financial Institutions

Consider giving a copy of the DPOA to reliable financial institutions like banks that the agent might deal with. The step eliminates hassles for the agent if they will ever require using your POA.

When Would You Use DPOA in Bankruptcy?

Regarding bankruptcy, a DPOA can be instrumental if you, the principal, cannot handle financial issues due to health conditions or incapacity. For instance, if you are aged with significant debts and dementia, you might need an agent to make vital decisions for you, including bringing a bankruptcy case.

Below are instances where the durable power of attorney could be vital:

• Extended hospitalization — If you cannot manage your financial issues due to physical incapacity or long-term hospitalization, you might need an agent.
• Age-related cognitive decline — An aged person with Alzheimer’s or dementia might need an agent to handle financial decisions.
• You are incapacitated due to a disease — If you suffer from severe cognitive decline or coma, your agent can manage your debts and financial matters, like filing for bankruptcy.

Can You File for Bankruptcy as a DPOA Agent?

Yes, you can file a bankruptcy case for your principal. However, there are limitations and considerations to note:

• Authority — The DPOA document should explicitly permit you to handle legal and financial matters, like filing a bankruptcy case, for the principal. Since not every DPOA includes this authority, review the paperwork to ensure bankruptcy filing is covered.
• Your bankruptcy chapter— Depending on your specific circumstances, the bankruptcy chapter you file might require various degrees of approval and involvement from the principal.
• Bankruptcy petition — The person bringing the bankruptcy petition must sign schedules and the petition. The DPOA can help with the paperwork preparation and filing, but the debtor’s signature is required. You, the agent, should attend a court proceeding, preferably with the debtors. It allows the judge to ask questions and be sure that the principal requires assistance from DPOA. If the principal is incarcerated or incapacitated, the court can dispense this requirement at its discretion, depending on the case circumstances.
• Legal assistance — Bankruptcy is a complicated process with considerable financial implications. Therefore, you need a skilled bankruptcy lawyer experienced in California bankruptcy law to help you in navigating the bankruptcy process. Your attorney will guide you throughout the process, review your case, and ensure you meet every legal requirement.
• Communication and trust — Effective communication is paramount to properly representing the principal’s financial interests and wishes. Additionally, you and the principal should have a high degree of trust.
• Court approval — The bankruptcy court might need additional evidence or documentation of the principal need for the DPOA. The court should also approve your filing.
• Limitations — While DPOA allows you to decide for the principal, it does not relieve the principal of their financial obligations and responsibilities. That means sometimes the principal should attend meetings, submit information, and satisfy specific responsibilities as part of the California bankruptcy process.

The Agent’s Obligations When Filing for Bankruptcy

If you, the DPOA agent, are contemplating bringing a bankruptcy case for the principal, you should know your responsibilities. Key duties include the following:

• Filing your bankruptcy petition — As the designated agent, you can file for bankruptcy for the principal only when the durable power of attorney has given you that authority. A bankruptcy court could require you to submit the DPOA and your bankruptcy petition to prove you have the authority to represent the principal.
• Managing financial documents — You should collect the relevant financial records, including debt records, income statements, tax returns, and property valuations, to prepare the bankruptcy petition.
• Handling disclosure requirements — Similar to a principal making a bankruptcy petition, you should adhere to all disclosure rules the bankruptcy court mandates. The requirements include stating the principal’s income, assets, debts, and expenses.
• Bankruptcy hearings — The designated agent might be required to attend bankruptcy proceedings on behalf of the principal, including the 341 meeting of creditors. During the meetings, the bankruptcy trustee and creditors make queries about bringing the bankruptcy case and the principal’s financial circumstances.
• Making decisions that safeguard the principal’s interests — The DPOA agent should always work to protect the principal.

Limitations of a DPOA in Bankruptcy Proceedings

Discussed below are limitations that you might face as an agent executing a DPOA in bankruptcy:

Bankruptcy Estate

After filing for bankruptcy, the law creates a bankruptcy estate that a trustee manages. That means you can no longer do the following:

• Transfer assets that can reduce the estate
• Selling assets (Only the trustee can liquidate properties to repay creditors)
• Sign contracts affecting the estate, including taking another loan
• Make decisions associated with the bankruptcy case
• Manage finances and bank accounts that are part of the estate

Note some properties are exempt, and the trustee cannot liquidate them. In that case, you can manage the exempt assets but with the bankruptcy trustee’s approval.

Also, the trustee will allow you to continue making medical decisions for the principal if a DPOA has healthcare aspects.

The Principal can Revoke the DPOA

The principal is entitled to revoke their DPOA at any time. It could complicate issues, particularly if you are managing a bankruptcy case.

You Need Express Authority

Not every DPOA explicitly allows you to file a bankruptcy case for the principal. If your durable power of attorney does not contain this authority, you should seek more legal authorization, like a court order.

You are under Court Supervision

Even when you have authority, the bankruptcy court might scrutinize your POA to ensure you act within your rights. The court aims to safeguard the principal’s interest, mainly if they are incapacitated.

Factors to Consider Before Taking the Agent Role

It is a compliment when a principal requests you to become an agent, but the authority comes with some responsibilities that only a few people know. For instance, you should keep records of every transaction you make under the DPOA, including bringing a bankruptcy case. If an interested party or a principal’s relative asks to see how you have handled money or see the records, you should abide. You are accountable to the principal and their potential heirs; they can request to analyze the documents at any time. In California, it is a crime for an agent to fail to keep enough transaction records. The agent should rebut it in court after it is suspected that the records are insufficient.

Bankruptcy law is complicated, and being an agent adds another consideration. Consult an experienced bankruptcy lawyer to help you know your power and potential risks.

Also, ensure your DPOA allows you to handle financial issues like filing a bankruptcy case. If there is something you do not understand, your lawyer can amend or clarify the paperwork if necessary.

Bringing a bankruptcy case should be the last resort. Therefore, you should first analyze the principal’s financial circumstances to understand other options, including a repayment plan or debt negotiation.

Being an agent can be time-consuming, mainly if the principal finances are complicated. You should be honest about whether you can dedicate enough time and care to this responsibility.

Unlike other steps of bankruptcy that you can manage online like filing forms, bankruptcy proceedings require in-person meetings. That means it can be challenging if you reside many miles away and should physically meet with the creditors.

Finally, ask yourself whether you have the expertise to bring a bankruptcy case. Do you understand the financial issues and stay organized? Do you have the right type of support around you?

Mistakes to Avoid Making When Filing for Bankruptcy as an Agent

If you are contemplating bankruptcy, learning what to avoid before filing for bankruptcy is vital. Here are the things to avoid before bankruptcy:

Do Not Drain the Principal’s Retirement Account

You can protect the principal’s retirement money in bankruptcy. Consequently, do not withdraw retirement money to pay off a loan that bankruptcy can wipe out.

Before clearing debts this way, consult a skilled bankruptcy attorney.

Avoid Moving Assets

Although the bankruptcy schedule requires that you provide details about the principal’s assets, you might be tempted to hide, transfer for protection, or sell assets before bringing a bankruptcy case. Avoid doing it. You risk facing criminal charges and being denied a discharge.

It is not wrong if you sold a property before filing the bankruptcy case to pay the principal’s expenses like rent, hospital bills, utilities, or food. However, you should be ready to explain the transaction to the trustee and offer supporting documentation.

Avoid Providing Incomplete, Dishonest, or Inaccurate Information

On the bankruptcy paperwork, provide accurate and complete information about the principal’s expenses, financial history, debt, and income. Representing information could result in fraud criminal charges. If you file incomplete information, the court could dismiss the case or require you to file more paperwork with the correct information and pay additional fees.

Find a Qualified Bankruptcy Lawyer Near Me

A California DPOA helps individuals plan their future. It ensures that the agent can oversee and make financial decisions for the principal. That means you can file a bankruptcy case if the principal can neither repay their debts nor manage their finances due to age or illness. A skilled bankruptcy attorney can help you understand your roles and limitations as an agent and make decisions that align with the principal’s current life changes. The legal team at San Diego Bankruptcy Attorney can use a proactive approach that protects the principal’s interests while providing stability, clarity, and minimizing potential misunderstandings or disputes relating to the estate. Please call us at 619-488-6168 to book your consultation and learn how we can help you.