Some people find debt management difficult, particularly if they suffer from mental illness. And some mental illnesses can trigger overspending. But proving that a mental illness rendered someone incompetent to agree to a debt is a difficult and costly process. Individuals who struggle with mental illness -- and their spouses or families -- should seek legal advice for protecting their finances.
Debt and Mental Illness
If a person falls into a contractual debt while deemed 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. But proving someone is incompetent is difficult and 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 in court 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 must prove that the debtor meets 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, medical records or doctors that can testify or document the debtor's mental 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. People declared mentally incompetent through the legal system, must have someone assigned as a guardian to handle their financial affairs.
The law protects some types of government benefits, such as Social Security Disability Income or Supplemental Security Income from garnishment and levies. This means that if a mentally ill debtor receives all or most of his income from government assistance, he can protect his income even if a creditor wins a lawsuit against him. It is up to the debtor to protect these funds by notifying the creditor, and the court that issued the judgment against the debtor, that these funds are exempt. This usually involves filling out forms that are available at the courthouse and, in some situations, could also involve a court hearing.
- HGExperts.com: Law and Psychiatry: Assessing Civil Competence
- MSN Money: Married to a Financial Basket Case?
- Find Law: Legal How-To: Declaring Someone Incompetent
- MSN Money: How the Brain Busts the Budget
- Federal Student Aid: Cancel or Discharge a Loan
- Federal Trade Commission: Creditors Seeking Federal Benefits in Your Bank Account? Understanding Your Rights; May 2009
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