What is mental capacity?

What is mental capacity?

Mental capacity means ‘your ability to understand information and make decisions about your life.’

Last week members of the Dunedin Advisory team attended the IPA Personal Insolvency Conference in Manchester where mental capacity in relation to debt was the subject matter of one of the speakers who looked at recent legal cases raised against individuals.

England and Wales currently have a Mental Capacity Moratorium (MCM) process in place which Scotland is looking at closely. A Scottish Government Consultation Paper is active with respondents having until the 22nd January 2024 to submit their responses and views for consideration.

In principle, a Scottish MCM would mean that those with mounting debt and extreme mental illness (where they are in receipt of medical care) will be given an extended period where no action can be taken against them to make them bankrupt. One of the aims is to ensure that people struggling with mental health and finances have access to breathing space and respite. People who are in crisis care generally cannot access more conventional forms of money advice.

Expert Advice

The Scottish Government has benefitted from expert advice provided by a Mental Health Moratorium Working Group with hands-on experience of some of those involved in delivering the scheme south of the border, combined with key Scottish members.

Eligibility criteria

The Mental Health Moratorium Working Group has suggested there should be two aspects to the eligibility criteria for entering a Mental Health Moratorium – the mental health requirement and the debt level requirement. The Scottish Government has also stipulated that eligibility would be limited to individuals with a habitual residence in Scotland, and who are not currently in another statutory debt solution (other than the standard moratorium).

Stakeholders concerns

Representatives from all stakeholder sectors have raised concerns about the potential consequences of the mental health requirement being too open and with a high level of protection, such as freezing the interest and charges of the individual’s debts. This could have an undue impact on creditors. As a result, defining the eligibility criteria for entry into a Mental Health Moratorium needs to be carefully balanced.

In Scotland, the government proposes that: ‘to be eligible for a Mental Health Moratorium, an individual must be receiving treatment, with an element of compulsion, under one of the following provisions from the Mental Health (Care and Treatment) (Scotland) Act 2003 (the “2003 Act”) and the Criminal Procedure (Scotland) Act 1995 (the “1995 Act”), or similar legislation.

Recovery protection period

Experience from the scheme in England and Wales is that debt counselling can only really begin once the individual has started to recover. The Scottish Government proposes that the recovery protection period should initially be set at six months.

Application stage

At the application stage, the working group recommendation is that the individual, or someone with power of attorney or a guardianship acting on the individual’s behalf, should be required to provide signed agreement to an application for a Mental Health Moratorium. The Scottish Government envisage that this would be provided by an approved debt adviser who would be required to confirm three things:

  • that they have clearly explained the Mental Health Moratorium to the individual or their representative (power of attorney or guardianship),
  • that the individual or their representative wish to proceed; and
  • that they will provide debt advice to the individual at a suitable point in the process

Qualifying Debts

It is proposed that a Mental Health Moratorium would only provide protection for debts which were incurred prior to a Mental Health Moratorium application date. They would match the list of debts which can be included in a Debt Arrangement Scheme. This means that continuing liabilities eg. mortgage, rent payments and student loan repayments should continue to be paid.

Business debts would also be excluded where the business is a separate entity from the individual (that is, not for sole traders). The parallel scheme in England and Wales excludes a large number of debts, including court fines, child support maintenance, any obligation arising under Confiscation Orders, benefit overpayments and negligence claims.

When might it come into force?

The earliest possible date when the Mental Health Moratorium will be available is April 2025.

Policy goals for individuals

  • to provide the individual time to address their severe mental health issues without additional pressures from their financial problems
  •  to prevent their financial position from getting worse before they are able to take advice and deal with their debts

Policy implications for creditors

  • must not chase individuals for payment of qualifying debts
  • must not take enforcement action for payment of qualifying debts
  • must not increase debts owed by adding interest or charges, fees or penalties which have accrued on qualifying debts during the moratorium period

The next stage

Once all the replies have been analysed and assessed, preparation of draft regulations will be completed by the Scottish Government.

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