Can Debts Be Written Off Due to Mental Illness?

Healthcare-specific debt relief

If the root cause of debt is the accumulation of medical expenses related to managing mental health, then here are some programs that might be of assistance:

Hospital charity care programs

• Most nonprofit hospitals are required to provide charity care as part of their tax-exempt status. These programs can significantly reduce or eliminate medical debt for those who qualify based on income. Many programs consider disability status and unusual circumstances, which can include mental health conditions that affect earning capacity.
• The application process typically requires documentation of income and assets, but many hospitals have simplified procedures for those receiving government benefits. Some hospitals offer payment plans with zero percent interest for those who don’t qualify for full charity care.

Medicaid and mental health services

• Medicaid expansion under the Affordable Care Act has significantly improved access to mental health services. In expansion states, adults with incomes up to 138% of the federal poverty level qualify for coverage. Medicaid covers mental health services including therapy, psychiatric care, and medications with minimal or no copayments.
• For those with existing mental health debt, some states have programs that help pay down medical debt for Medicaid-eligible individuals. Additionally, once enrolled in Medicaid, individuals can avoid accumulating new medical debt for covered services.

State and local programs

• State disability programs: Some states offer temporary disability benefits that can provide income support during mental health crises. California, Hawaii, New Jersey, New York, and Rhode Island have state disability insurance programs that may cover mental health conditions. These benefits can help prevent debt accumulation during short-term disabilities.
• State-specific debt relief programs: Several states have implemented programs specifically designed to address medical debt. For example, New Mexico has a hospital debt forgiveness program, and Connecticut has legislation limiting medical debt collection practices. Some states also have stronger consumer protection laws than federal requirements.
• Local emergency assistance programs: Many counties and cities operate emergency assistance programs that can help with immediate financial needs during mental health crises. These might include utility assistance, rent support, or emergency cash assistance. While these programs vary widely, they can provide crucial short-term relief that prevents debt accumulation.

Nonprofit and community resources

• National Foundation for Credit Counseling (NFCC): The NFCC offers free and low-cost credit counseling services through certified counselors who understand the unique challenges faced by those with mental health conditions. They can help create debt management plans, negotiate with creditors, and provide financial education tailored to individual circumstances.
• Mental Health America financial resources: Mental Health America maintains resources specifically focused on the intersection of mental health and financial wellness. They provide information about debt relief options and can connect individuals with local resources.
• Local mental health centers: Community mental health centers often have social workers or case managers who are knowledgeable about local financial assistance programs. They can help navigate applications for benefits and connect clients with debt relief resources.

Strategies for managing debt during mental health challenges

Here are a few ways you can stay on track with your debt while dealing with mental health challenges:

• Working with creditors: Many creditors have hardship programs that can temporarily reduce or suspend payments during mental health crises. It’s important to contact creditors proactively when possible, as they’re often more willing to work with borrowers who communicate their situation rather than simply missing payments.
• Prioritizing secured debt: When resources are limited, it’s crucial to prioritize secured debts like mortgages and car loans, as default on these can result in loss of essential assets. Unsecured debts like credit cards and medical bills, while still important, don’t carry the same immediate risk of asset loss.
• Building emergency funds: Even small emergency funds can prevent the accumulation of new debt during mental health episodes. Some programs, like Individual Development Accounts (IDAs), provide matched savings for low-income individuals and may be available to those with disabilities.

Special considerations for student loans

• Income-driven repayment plans: Federal student loans offer several income-driven repayment options that can significantly reduce monthly payments for those with limited income due to mental health conditions. These plans can result in payments as low as $0 per month for those with very low incomes.
• Public service loan forgiveness (PSLF): For those working in qualifying public service jobs, including many mental health positions, PSLF can forgive remaining federal student loan debt after 120 qualifying payments. This program can be particularly valuable for those who entered mental health fields to help others with similar challenges.
• Total and permanent disability discharge: Federal student loans can be discharged if the borrower becomes totally and permanently disabled. This discharge is available for those with mental health conditions that prevent them from working and are expected to last indefinitely.

Tax implications and protections

• Earned Income Tax Credit (EITC): The EITC provides refundable tax credits for low-income working individuals and families. For those with mental health conditions who may work part-time or have reduced earning capacity, the EITC can provide significant additional income.
• Protection of benefits from garnishment: Social Security disability benefits, SSI, and certain other government benefits are generally protected from garnishment by private creditors. However, this protection isn’t automatic, and recipients may need to assert their rights if faced with garnishment proceedings.

Building long-term financial stability

Dealing with debt is not easy on a good day, let alone when you’re struggling with mental health. Take these suggestions into consideration to help keep you on track as you move forward with your financial and personal life:

• Financial therapy and counseling: Some mental health professionals specialize in financial therapy, addressing both the emotional and practical aspects of money management. This specialized counseling can help individuals develop healthier relationships with money and build skills for long-term financial stability.
• Vocational rehabilitation services: State vocational rehabilitation agencies provide services to help individuals with disabilities, including mental health conditions, prepare for and maintain employment. These services can include job training, education assistance, and job placement support, all of which contribute to long-term financial stability.
• Representative payee services: For individuals whose mental health conditions significantly impair their ability to manage finances, a representative payee can help ensure that Social Security benefits are used appropriately for basic needs and debt obligations.

The bottom line

The burden of debt can feel overwhelming for anyone, but for those struggling with mental health conditions, it can seem insurmountable. However, numerous programs and protections exist specifically to help break the cycle of mental health struggles and financial distress. From federal disability benefits to local emergency assistance programs, from nonprofit credit counseling to specialized debt forgiveness programs, help is available.

The key is understanding what resources are available and how to access them. This often requires patience, persistence, and sometimes professional assistance, but the relief these programs can provide is substantial. By addressing both the mental health and financial aspects of the challenge, individuals can work toward stability in both areas.

There’s always JG Wentworth…

Do you have $10,000 or more in unsecured debt? If so, 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 
• We only get paid when we settle your debt  

If youthink 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

“Mental Health Statistics in the U.S. 2025 | Key Facts.” The Global Statistics. 2025.