Can a Person Who Is Mentally Ill Be Held Responsible for Debt?

Many people find debt management difficult, particularly if they suffer from mental illness. In fact, some mental illnesses can trigger overspending. Unfortunately, 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, should seek legal advice for protecting their finances.


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.

Student Loans

Federal law provides for the cancellation of loans for individuals who are permanently disabled and unable to work. To prove a disability, a mentally ill person needs a statement from a physician as to his inability to work, and must document his income over a three-year period. The review process takes some time to complete and if the guarantee agency and loan holder approve the initial application for disability cancellation, the borrower receives a three-year conditional discharge. If the borrower is still disabled and unable to work at the end of the conditional discharge period, he is eligible for a full discharge of his student loan debt.

Garnishment Exemptions

The law protects some types of government benefits, such as Social Security Disability Income (SSDI) or Supplemental Security Income (SSI) 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. However, 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 cases, a court hearing.

There are a few types of debt that can be collected from most otherwise "exempt" funds. These debts include taxes, student loans and family support obligations. Federal law protects SSI payments from seizure to satisfy any type of debt.

Spousal Protections

The spouse of a mentally ill person should speak to an attorney to develop ways of protecting herself from liability for her spouse's debts. In states that do not have community property laws, spouses may not be liable for repayment of each other's debts, but this won't prevent creditors from trying to seize or place liens on jointly held accounts and assets, such as a home. In her article "Married to a Financial Basket Case?," financial journalist Liz Pulliam Weston suggests entering into a postnuptial agreement, which limits the liability of spouses for debt repayment. A final option is divorce, though this itself can be a challenge if the mentally ill spouse cannot work, as the healthy spouse may be ordered to provide ongoing financial support, even after the marriage ends.