'Breathing space' for people with debt and mental health conditions: A topic of much debate

In our previous blog we looked at the Scottish Government's proposal to introduce a mental health moratorium (MHM), which would prevent debt recovery action by creditors against individuals who are receiving treatment from mental health specialists for a mental health condition.. With the Bill now at Stage 3, and following a consultation on how an individual might access a MHM, let's consider some of the debate around how it should operate in practice.

The MHM will not provide a debt solution per se, rather it is designed to facilitate the finding of such a solution. While there has been little disagreement over the benefits of introducing a MHM, there has been less consensus on the eligibility criteria, the length of the moratorium once treatment has finished and the extent to which creditors should be given a right to challenge a MHM.

Mental Health Moratorium Working Group

The Scottish Government set up the MHM Working Group to look at possible ways the MHM could work in practice. The group included mental health professionals, representatives from the debt advice community and the creditor sector. Its report of recommendations was published in August 2023.

On the difficult issue of eligibility, while the MHM Working Group recognised the concerns around restricting access to the MHM, it was also mindful of the dangers should the entry criteria be too open. IThe group therefore recommended that an individual applying for a MHM must be receiving treatment under specified sections of the Mental Health (Care and Treatment)(Scotland) Act 2003 or the Criminal Procedure (Scotland) Act 1995.

The group also considered whether individuals receiving in-patient care and treatment on a voluntary basis should also be included in the eligibility criteria, but concluded that having the criteria too open might have unintended consequences. That said, the group did recommend that this should be reviewed once the MHM had been introduced.

The other contentious issue for the MHM Working Group was the period of the moratorium. While it was agreed that it should extend throughout the period the individual is receiving a compulsory aspect to their treatment, there was no consensus on how long it should continue once the treatment had come to an end (i.e. the recovery protection period). The current standard moratorium is six months and some thought that it should be at least this period, while others believed this was too long and could potentially delay debt resolution.

Scottish Government consultation

On 13 November 2023, the Scottish Government published a consultation on the proposed process for entering into a MHM . The consultation was based on the Working Group’s report of recommendations, and the responses to the Economy and Fair Work Committee’s calls for evidence, and other stakeholder engagement. The consultation closed on 22 January 2024.

The consultation document recognised that defining the eligibility criteria was always going to involve a fine balance, particularly where it was being suggested that the MHM would include a freeze on interest and charges throughout the period of the moratorium – something which is currently not available under the standard moratorium. However, the consultation noted that the Scottish Government was minded to accept the Working Group’s advice that to be eligible for a MHM, an individual must be receiving treatment, with an element of compulsion.

The Scottish Government also proposed that the recovery protection period should initially be set at six months, noting that the standard moratorium was also currently set at six months, but which may be reduced by the time the MHM is available. However, experience from England and Wales was that the process of advising individuals in these circumstances takes significantly longer than other clients and so there might be good reasons for the recovery protection period being longer than the standard moratorium.

Perhaps somewhat controversially, the Government also proposed that creditors should not be able to challenge the granting of a MHM on the basis that the narrow eligibility criteria would be "sufficient to ensure adequate safeguards are in place to confirm the identity and appropriate level of the Mental Health Professional verifying that the necessary criteria have been met."

Responses to the consultation

As you might expect, there has been opposing views expressed in response to the consultation. The Law Society of Scotland (LSS) supported the proposed eligibility criteria on the basis that it would provide clarity and legal certainty on the availability of the MHM, while also expressing concern that this will exclude an individual who is receiving treatment on a voluntary basis and whose financial circumstances might be a contributory factor to their poor mental health, or hindering their recovery.

Money Advice Scotland (MAS) strongly disagreed with the proposed eligibility criteria, believing that they would not effectively serve most of their clients currently experiencing mental health crises.

Citizens Advice Scotland (CAS) only agreed with the proposed eligibility criteria "to a certain extent" suggesting that the they needed to be wider to ensure that all those who need access to the MHM can do so and benefit from its protections.

Both MAS and CAS called on the Government to consider using the Debt and Mental Health Evidence Form (DMHEF), as a “trigger point” thereby opening up the MHM to a wider spectrum of individuals with mental health issues whilst still being grounded in the mental health professional sector. The DMHEF is already used in practice by the mental health and debt advice sector and, it was argued, would provide an alternative route into the MHM as opposed to just treatment with a compulsory element.

CAS also thought that creditors should not be allowed the right to challenge the granting of a MHM as they are not mental health professionals and are not qualified to challenge a client’s mental health condition. The opposite view was expressed by the LSS who argued that parties should, in limited circumstances, be able to challenge the granting of a MHM (e.g. in relation to fraud), and a debtor should also be able to challenge a decision not to grant a MH on the basis that the criteria are, in fact, met. The Centre for Scots Law at the University of Aberdeen also held this view, noting that a blanket exclusion on challenges would be inappropriate, and mentioning the case of Kaye v Lees [2023] EWHC 758 (KB), referred to in our previous blog, as being a case worth considering when it comes to determining whether there should be express statutory provision on a creditor's right to challenge.

Next steps

The Government will be considering all consultation responses as it develops the necessary regulations, which will ultimately govern how the MHM will operate in practice. It is likely that the debate over the eligibility criteria, the length of the recovery protection period and creditors right to challenge will continue once the draft regulations are made available.

Current indications are that the MHM will not be available until April 2025, so it will be some time yet before we see any changes come into force.