If a person falls into a contractual debt while "incompetent," defined as unable to understand what she is doing or the fact that she is obligating herself in some way, it may be possible to nullify a contract. However, proving incompetence is difficult and usually requires working with a lawyer. The fact that a debtor has a mental illness may not be enough to remove the debtor's responsibility for the debt. Instead, the debtor's attorney would have to show that the debtor did not understand that she was entering into a contract or did not understand the consequences of the contract, such as owing money.
Laws that define mental competence in various areas of civil and criminal law vary by state. This means that the debtor's attorney would try to prove that the debtor met the standards established by state law for mental incapacity or incompetence for signing a contract at the time that she took on the debt. In California, for example, the attorney may present evidence that the debtor was so impaired at the time of undertaking the debt that she was unfamiliar with who or where she was, or was unable to communicate with those around her. The attorney may also point out that the client was experiencing hallucinations, delusions or disordered thinking when agreeing to the debt. To prove these claims, the lawyer may need to call witnesses as to the debtor's mental state or show medical records that document the debtor's condition.
For many people, going to court to escape responsibility for a debt isn't a reasonable or cost-effective option, as it would require financial resources that may be equal to, or even exceed, the incurred debt. In such cases, the debtor or his representatives may wish to explain to the creditor directly that the debtor was not competent to take on a debt. In some cases, a creditor may continue collection efforts, but may also be willing to settle for the total amount owed if it appears that the debtor may be able to prove incompetence if the case is litigated.