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Can Debts Be Written Off Due to Mental Illness?
by
JG Wentworth
•
August 27, 2024
•
18 min
Mental health affects millions of people worldwide and can have profound impacts on an individual’s life, including their financial situation. In fact, according to the New York Times, mental health issues continue to impact a high percentage of Americans even is a post-pandemic world.
One question that often arises is whether debts can be written off or forgiven due to mental health issues. This article will explore this complex issue, examining the legal, financial, and ethical considerations involved for anyone struggling with their financial and mental health simultaneously.
The intersection of mental health and debt
Mental health can contribute to financial difficulties in several ways:
- Impaired decision-making: Certain mental health conditions can affect an individual’s ability to make sound financial decisions.
- Reduced earning capacity: Mental illness may impact a person’s ability to work, leading to reduced income.
- Increased expenses: Treatment for mental health conditions can be costly, potentially leading to medical debt.
- Manic spending: Conditions like bipolar disorder can sometimes lead to periods of excessive spending.
Given these factors, it’s understandable that individuals with mental illness might seek ways to alleviate their debt burden, including the possibility of having debts written off.
Legal framework for debt forgiveness
In most jurisdictions, there is no specific law that allows for automatic debt forgiveness due to mental illness. However, there are several legal avenues that might be relevant:
- Bankruptcy: Bankruptcy laws in many countries provide a way for individuals to discharge or reorganize their debts when they are unable to pay. Mental illness may be a contributing factor in a bankruptcy filing, but it’s not typically a standalone reason for debt discharge.
- Undue hardship: In some cases, particularly with student loans, borrowers can petition for discharge based on “undue hardship.” Severe and persistent mental illness might be considered as part of an undue hardship claim.
- Contractual capacity: In rare cases, if an individual can prove they lacked the mental capacity to enter into a contract at the time a debt was incurred, the contract might be voidable. However, this is a high bar to meet legally.
- Disability discharge: For certain federal student loans, individuals who are determined to be totally and permanently disabled may be eligible for loan discharge. Some mental health conditions might qualify under this provision.
Approaches by different types of creditors
Different types of creditors may have varying policies when it comes to addressing debt in cases of mental illness:
- Banks and credit card companies: Most major financial institutions don’t have specific policies for writing off debt due to mental illness. However, they may offer hardship programs or payment plans for individuals facing financial difficulties, regardless of the cause.
- Medical debt: Some hospitals and healthcare providers have financial assistance programs that might consider mental illness as a factor in reducing or forgiving medical debt.
- Government debt: Government agencies may have more flexibility in certain cases. For example, the Social Security Administration has provisions for waiving overpayment recovery in cases where the individual is without fault and recovery would defeat the purpose of the benefits or be against equity and good conscience.
- Student loans: As mentioned earlier, federal student loans have specific provisions for discharge in cases of total and permanent disability, which might apply to severe mental illness in some cases.
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Practical steps for individuals with mental Illness facing debt
While there’s no automatic debt forgiveness for mental illness, there are steps individuals can take:
- Seek treatment: Prioritize mental health treatment, which may improve decision-making and earning capacity.
- Financial counseling: Work with a financial counselor who has experience with mental health issues.
- Communicate with creditors: Many creditors have hardship programs or may be willing to negotiate payment plans.
- Explore legal options: Consult with a lawyer to understand options like bankruptcy or disability discharge for student loans.
- Advocate for support: Work with mental health advocacy groups to push for policies that provide more support for individuals with mental illness facing financial hardship.
- Consider a representative payee: In some cases, having a trusted individual manage finances can help prevent future debt accumulation.
The role of mental health professionals
Mental health professionals can play a crucial role in addressing the intersection of mental illness and debt:
- Documentation: Providing documentation of a mental health condition and its impact on financial capacity can be crucial for legal or administrative proceedings.
- Capacity assessments: In some cases, mental health professionals may be called upon to assess an individual’s capacity to manage finances or enter into contracts.
- Treatment planning: Incorporating financial management skills into treatment plans when appropriate.
- Advocacy: Supporting patients in communicating with creditors or seeking appropriate legal assistance.
The bottom line
While there is no automatic or universal system for writing off debts due to mental illness, there are various avenues through which individuals with mental health challenges can seek relief or assistance with their debts. These range from legal options like bankruptcy or disability discharge for certain loans, to negotiating with creditors for hardship accommodations.
For individuals struggling with both mental illness and debt, it’s crucial to seek comprehensive support, including mental health treatment, financial counseling, and legal advice when necessary. While the path may be challenging, with the right support and resources, it is possible to navigate these dual challenges and work towards both mental and financial well-being.
There’s always JG Wentworth…
While we don’t have any solutions specifically tailored to address individuals struggling with debt and mental health simultaneously, we still might be able to help. If you have $10,000 or more in unsecured debt, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- 24/7 support
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
SOURCES CITED
Barry, E., “Americans’ Struggle with Mental Health.” New York Times. August 8, 2024.
About the author
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.
