Debt problems and poor mental health – or the strong risk of it, at least – are inextricably linked. The Money and Mental Health Policy Institute has found that 18% of people with mental health problems may also suffer with debt issues and that 46% of people in problem debt also have a mental health problem. Around 1.5 million people may be struggling with Mental Health issues and problem debt at the same time. Worse still, it’s estimated that more than 400,000 in this position consider taking their own life in England each year.
Advisers on all sides of this terrible issue agree on one important thing: it’s vital to talk about it – possibly starting with a close and sympathetic friend before progressing to professional financial help. For some individuals, calling the local Citizens Advice Bureau or the Step Change debt charity may be relatively easy and anonymous first steps towards taking action, and therefore control.
To be blunt at the outset, poor mental health is by no means a ‘get-out’ when dealing with debt, whether it’s a single large credit card balance or a full bankruptcy with several assets at risk. It can’t offer a legal form of protection to a debtor. Nonetheless, communicating a mental health situation to creditors may help to secure more favourable repayments terms or, in some cases, partial or even complete write-offs on the basis that a medical inability to deal with a debt problem will dramatically reduce the prospects of recovering money. ADHD sufferers are a specific example of a group potentially unable to focus on managing their debts.
At a tactical level, it’s possible to inform creditors ‘officially’ by updating a personal credit file with a form of mental health declaration, evidenced by professional medical opinion. The following give direction for pursuing this route, as well as securing a short term breathing space, perhaps while financial advice is sought:
Debt and Mental Health Evidence Form
Reaching for the insolvency toolbox to take a process to the next level, structured options exist to afford debtors a certain level of protection, while satisfying creditors and not ruling out partial write-offs. A Debt Relief Order, applied for via an approved adviser, may help those with debts of less than £30,000 and very few realisable assets. It can freeze payments for a year and possibly clear debts thereafter. An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between a debtor and creditors to pay back debts over a period of time. Approved by the Court, both parties have to stick to it.
Declaring Bankruptcy may be seen as a ‘nuclear option’ which some might say still carries a stigma in the UK, relative to other countries such as the US. However, for those with few realisable assets but large debts, it may prove to be a fresh start for debtors who also have mental health issues: creditors and their claims are dealt with by an Insolvency Practitioner or the Official Receiver and if there are indeed no realizable assets, then they are written off with likely no come back to the Debtor. Whilst bankruptcy is a traumatic short term life event, it can offer huge long term relief – which can only be positive for mental health. Debtors I have advised have spoken of the relief of finally being able to get a proper night’s sleep which for some was after many years of juggling creditors and claims with the attendant debt related trauma. The impact on their mental health and view of life is immeasurable.
Thankfully mental health is beginning to count when unravelling an individual’s personal debts. Even in large and contentious bankruptcies, mental health considerations may determine how a Court responds to requests from a Trustee. In the case of Hyde v Djurberg (2022) the trustees in bankruptcy secured a search and seizure order pursuant to section 365 of the Insolvency Act 1986, despite mental health concerns regarding Djurberg, the Bankrupt. The Court was satisfied that Djurberg had not complied with disclosures and documentation required by the Trustee. However, this case highlighted the factors a Court may consider before granting such an order and demonstrates how a respondent’s mental health may influence a decision to exercise the Court’s discretion. Concerns regarding the mental health of the respondent do not negate the granting of such an order, however it was made clear that the burden is on a Trustee to demonstrate that safeguards protecting the mental health of the bankrupt should be put in place.
There are often many moving parts and messy loose ends for those in problem debt. For any individual, the perceived complexity of resolving the problem is enough to ensure that it remains unaddressed; this paralysis is compounded when poor mental health is involved. Professional advisers such as insolvency practitioners are adept at juggling different elements and helping to negotiate the best possible outcome. Debtors in these miserable situations shouldn’t hesitate to take advantage of a free initial consultation to begin the process of rebuilding both their finances and their mental health.
Written by Jo Milner, Managing Director at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.