How to deal with debt

Studies show that one in four people with a mental health problem also has debts  and that one in two adults with debts also have a mental health problem .

Living with debt can be stressful; however there can be a number of ways to deal with it. Our factsheet provides some suggestions about dealing with existing debt and trying to ensure that it does not mount up again.

Why do people with mental illness get into debt?

Many people are prone to debt but people with mental health problems often have specific problems with money related to their condition.

• Sometimes people start a job and then it ends suddenly because symptoms return and they can’t continue, so they are left with changes in income that make it more difficult for them to budget and manage their money. 
• Some people living on benefits have a low income and no savings and therefore do not have any money to cover sudden unexpected bills.
• Many people with mental illness do not qualify for free prescriptions and have to find the cost of them, which can be high if they are prescribed several items every week.
• Often because of mental health problems like depression or the ‘negative’ symptoms of schizophrenia, or even the sedating effects of some medication, service users simply don’t claim benefits that they are entitled to.
• People who experience ‘mania’ from time to time often increase their spending when they are ‘high’ and may spend far more than they can afford.

All these problems result in increased stress on both the person in debt and their family or carers.

Although sometimes credit can be useful, for example if your washing machine breaks and you don’t have the money to fix it or buy a new one, paying the money back can be hard, especially if you are on a low income. It is generally less stressful if you can live without credit, and avoid taking out credit cards or loans.

What help can I get?

If you or someone you know is getting into debt, you should seek help as early as possible.

There are several services that should be able to offer advice and may help you draw up a list of your income and outgoings (often called a financial statement or budget sheet).

Free debt advice can be obtained from organisations such as; National Debtline, Consumer Credit Counselling Service, Citizens Advice Bureaux, or local independent advice services which can be found in the Yellow Pages or your local telephone book.

There is also a debt adviser at Rethink's Advice and Information Service who you can contact. 

Some solicitors and debt management companies also offer advice on debt management but you are likely to have to pay for their services.

We would not recommend that you pay someone to deal with your debts; especially as there are lots of places you can get help for free.  Not all these advice services will understand the link between mental health problems and debt.

What are priority and non- priority debts?

Firstly, the adviser will check whether you are the person who has to pay or is liable for all the debts.

Then the adviser will work out which are priority debts and which are non-priority.

Priority debts are those which, if unpaid, could lead to losing something that is important to you. For example, if you do not pay your mortgage or rent you could lose your home; if you fall behind on your gas or electricity payments you could lose your supply.

Other priority payments include

• Unpaid Magistrate’s Court fines
• Council tax 
• Hire purchase agreements.

Falling behind on payments to non-priority debts will not lead to such serious consequences, however your credit rating is likely to be affected.

This means it may be harder for you to get credit (like a loan or credit card) in the future. Sometimes this can be a positive thing. For example if you suffer from bipolar disorder, you may not be able to control your spending during a manic phase. If your access to credit is restricted this may be one way of controlling your spending.

The adviser will help you work out the amount of money you have coming in and look at your regular outgoings.

They will draw up a financial statement  which will show what money  (if any) is available for repaying  your debts.

The adviser will also try to ‘maximise your income’ by making sure you are claiming all the benefits or tax credits you are entitled to. They will then help you to work out a repayment plan, paying any priority debts first and giving whatever is left to any non-priorities.

The adviser may also help you:

• Fill in forms
• Write letters
• Negotiate with creditors (perhaps asking them to freeze any interest charges)
• (In some cases) attend court hearings or benefits tribunals with you

Most specialist agencies will assist with housing problems relating to rent arrears and housing repossession.

They will also advise you to open a ‘safe’ bank account. This is an account with a bank you do not owe any money to. This is because your bank could take your money to pay any debts you may have with them like:

• A loan
• Credit card 
• Overdraft.

Depending on your exact circumstances, they may identify a number of other options available to you, such as:

• A debt management plan
• Administration order
• Debt relief order
• Individual Voluntary Arrangement (IVA) 
• Bankruptcy.

See What are my options for dealing with my debt? for more details.

What can I do now?

Firstly, try not to panic!

• Make sure you keep all the bills and letters relating to your debts safely and give them to the adviser. When you see the adviser, be honest about how much debt there is. They are not there to judge you, just to help. 
• Be realistic about your spending habits and recognise what is an essential item and what is not. 
• Co-operate with the debt adviser as much as possible. They will be used to dealing with similar problems.

If you have one, ask your social worker or CPN to get in touch with the adviser – they will be able to arrange for a letter from the doctor confirming a health problem, which may help with debts being reduced or written off.

Someone like a relative, social worker or your CPN can also help you to ensure that you stick to arrangements for repayment.

What if I have to go to court?

If you have not paid what you owe or cannot keep up repayments to a non-priority debt, the creditor may take you to court and get a County Court Judgment (CCJ) against you.

The County Court is not a criminal court; it is not there to judge anyone guilty or innocent, just to settle disputes about money owed and how to repay it.

It is a paper based exercise so in most cases you do not have to attend the court. You would receive a claim form telling you how much you owe.

You are given the chance to write down your income, outgoings and other debts and the court will then decide how much you should pay off the debt every month.

There is a deadline to respond to the form. You could contact someone who can help you with this, perhaps your local Citizens Advice Bureau or debt advice service.

What if I don’t pay?

• If you do not pay the monthly sum agreed by the court on a regular basis you may be threatened with County Court bailiffs.
• If you still do not make any payment, the bailiffs may come round to your property and try to remove goods which will be sold to pay off the debt.
• It is important to remember that County Court bailiffs cannot break into your home and you do not have to let them in. Also, when you receive notice that the bailiffs may be coming, you can apply to the County Court to stop them coming out.
• If you own your own home the creditor could apply to have a charge put on it. This means that when the property is sold, the debt must be repaid before any money is passed on to the owner. 
• If you are working, the creditor could apply for an Attachment of Earnings Order. This is where they deduct money every month from your wages to pay the debt. They cannot deduct any money from benefits or tax credits to pay a CCJ. 
• If you owe someone £750 or more they could apply to make you bankrupt. However it is quite rare for a creditor to make you bankrupt unless you have lots of assets. (See What are my options for dealing with my debt? for more information on bankruptcy)