Debt and Mental Capacity Law in Scotland

Debt and Mental Capacity Law in Scotland

In Scots Law it is usually a requirement for someone to get into debt they must have the mental capacity to do so.

However, this is not always the case. Often it will depend on the type of debt that the person is being pursued for.

So, for example, for someone to obtain a debt for a bank loan, or  a credit card, they must have had the mental capacity to have entered into a legally binding agreement, otherwise the argument is if they didn’t, they can not be held responsible for the debt.

However, there are other types of debt, that someone can be liable for, even if they lack the mental capacity, such as for rent, or Council Tax (although there may be grounds for the person to be exempt for Council Tax – see below).

Equally, someone who lacks the mental capacity to knowingly enter into a legally binding agreement, may still be liable for other types of debt, such as for gas or electricity debts. The reason being is because these debts are for necessities of life, so although the person may not have the capacity to enter into an agreement, they can still be held liable for them, as these are services the person require, regardless of whether they have mental capacity or not.

What is Mental Capacity?

The issue of mental capacity is a question of whether someone has the ability to act on their own behalf and understand fully the implications of the acts they may take.

Where people lack the mental capacity to do so, the effects legally may be their acts are void and any agreements they enter into may either be void or voidable, meaning they cannot be enforced against them.

Mental incapacity can arise for a number of reasons, either physical or mental. Sometimes it can be permanent, but other times it may be temporary. Also sometimes it may be complete, in that a person has no mental capacity to do certain types of acts, like take out a credit card agreement; whilst other times it may be partial.  It may, therefore, be possible for someone to carry out that type of act, like take out a loan, providing certain steps are taken to safeguard the person’s interests and maximize their capacity to take those acts.

Scots Law and Mental Capacity

The first thing that should be noted is that the  laws that deal with debt and mental capacity in Scotland are different from those elsewhere in the UK.

This page, therefore, examines the law in Scotland and what issues should be considered when dealing with the issue of debt and mental capacity.

These range from the ability of people with mental and legal capacity issues to act on their own behalf, give instructions and understand advice; to the ability of people who manage their affairs to receive advice and enter agreements on behalf of the person they act on behalf of.

It also examines the protections available that can mitigate and avoid any unduly harsh effects resulting from the legal enforcement of debts when there may be capacity issues. 

Capacity to act

In Scotland there is a common law presumption of capacity.

This allows people working with clients and customers to presume that the person has full contractual capacity: that is the ability to enter into legally binding contracts.

Such presumptions can, however, be rebutted: the onus being on those who wish to rely on the rebuttal. So if you want to argue that a friend or family member didn’t have full mental capacity, the onus is on you to do so, presuming of course the person themselves will lack the capacity to do so. 

So if you want to demonstrate that someone did not have the capacity to do something, like take out a loan, it is for you to demonstrate this, as the person who gave out the loan could argue they had the right to presume the person they dealt with had full legal capacity.

However, this does not mean that if there were signs that a person was confused or did not understand what they were doing, that the other person can just ignore these red flags.

It is expected when people rely on a presumption, such as the presumption that another party had full legal capacity, they must do so in good faith.

What is the Test for Capacity?

“There is no all-purpose test for incapacity. The test depends on the decision to be taken…or task to be done. The principle of least restrictive alternatives and maximising the person’s capacity underline the importance of not making blanket assessments of incapacity and recognising any residual capacity an adult has”

Hilary Patrick, et al, Mental Health, Incapacity and the Law in Scotland, Tottel Publishing 2006

What this means is when someone lacks capacity it is rarely an absolute or definitive thing.

Instead it’s likely to be a matter of degree.

The definition of incapacity in Scotland, in relation to when a person cannot make decisions on their own behalf is contained in the Adults with Incapacity (Scotland) Act 2000.

It defines incapacity as being when a person is incapable of

  1. acting; or
  2. making decisions; or
  3. communicating decisions; or
  4. understanding decisions; or
  5. retaining memory of their decisions

by reason of mental disorder.

The Scottish Government has produced Guidance for social work and health care staff, in how to assess capacity under the Act and enable decision making.

It defines capacity as:

  “…the ability to understand information relevant to a decision and to appreciate the reasonably foreseeable consequences of taking or not taking that action or decision”.

The Guidance provides Chapters on supporting decision making, assessing a client’s capacity to deal with property and money matters and  how  to work with six major groups of people who may have impaired capacity and cannot make some or all decisions for themselves.

Appendix 1 also provides sample questions that can be used to assess a client’s capacity to deal with money and property matters.

Who May Lack Capacity?

Six major groups who may have impaired capacity to act or make some or all decisions for themselves could be:

  • People with neurological conditions;
  • People with dementia;
  • People with leaning disability:
  • People with a severe or chronic mental illness;
  • People with alcohol related brain injury;
  • People affected by a sever stroke


In assessing capacity the first thing someone has to consider is whether it is possible to communicate with the client.

The Act does state that no-one should be deemed to be incapacitated simply as they lack or have a deficiency in their ability to communicate, especially if that lack or deficiency can be made good by human or mechanical aid.

Where the inability to communicate is chronic, however, this can be grounds for incapacity even if a person can make a decision, as they may not be able to communicate it.

The first step in assessing capacity, therefore, must be in assessing the person’s ability to communicate and in exploring other possible methods of communication with the person.

This may mean involving others such as family members or support workers who know the person and can possibly communicate with them or by using other means of communication, such as pictures, sign language or writing.

There is an underlying principle in the Act that where possible all reasonable steps should be taken to maximize a person’s capacity and assist them to act on their own behalf.

People who have capacity issues, should, therefore be supported to enable them, if possible, to communicate, possibly through:

  1. The use of advocacy services or family members;
  2. The conducting of interviews over several short sessions, with regular intervals;
  3. Ensuring interviews occur in an environment which makes the person more comfortable (their home or the home of family members); and
  4. Avoiding the use of technical and legal jargon.

Decision Making

It is not enough that person should be able to communicate, it is also vital that they can understand the choices they are being presented with and can make informed decisions.

The Guidance identifies two strands in a person’s ability to understand:

  • The first being the person’s ability to understand the facts;
  • The second being the ability to weigh up options and foresee the different outcomes and possible consequences of one choice over another.

Understanding the facts in relation to debt, means a person being able to understand and have an awareness of their own personal and financial circumstances, such as what income and outgoings they have and what are their assets.

The second strand, is the ability to weigh up options, and means being able to understand the advantages and disadvantages of options and what risks are involved.

This does not mean someone may be deemed incapacitated simply because they make bad or unwise decisions.

We will all have our own preferences and understanding of what constitutes acceptable risks.

It could be poor decisions may be remedied by people being better informed or having more regard to the risks.

It is necessary that the poor decisions stem from the person’s mental incapacity and their inability to understand the facts or the consequences of their decisions, or both.

Even where someone can be deemed to understand, it also worth remembering that a reduced mental incapacity or even mental illness can prevent them from acting on the information they are being given.

Authority To Act For Others

Where people do lack capacity and this cannot be sufficiently maximised, it may be possible for them to be represented by others.

In Scots law, people and organisations can have authority to act on behalf of incapacitated adults.

The majority of these powers are contained within the Adults with Incapacity (Scotland) Act 2000.

Some are consensual and can be provided for by the person themselves, whilst others are non consensual and can be provided by the courts and the Office of the Public Guardian (Scotland).

As one of the principles of the Act are that any intrusion into the affairs of an adult should be the least restrictive possible, people should be aware that even when someone holds such powers, this does not mean they can do whatever they want.

Courts will usually only grant the minimum powers necessary to minimise any intrusion into the incapacitated adult’s affairs.

When dealing with someone who is acting on behalf of another, it is, therefore, important to not only see the documentation granting their powers, but to note the extent of those powers.

The provisions in the 2000 Act allowing others to act are:

  • Power of Attorney

There are two types of Power of Attorney provided for in the 2000 Act. The first of these is Continual Power of Attorney and the second is Welfare Power of Attorney. These are both consensual powers granted to a third party by the person themselves, when they still have the capacity to do so.

The first of the two, Continual Power of Attorney, grants the third party the power to deal with the financial affairs and property of the person and importantly enter legal contracts and raise or defend legal actions on behalf of the person.

The second, the Welfare Power of Attorney, as the name suggests relates to welfare matters such as deciding on care arrangements and making lifestyle and medical decisions on behalf of the person.

  • Access to Funds Power

The Access to Funds power is not dependent on the consent of the person and can be granted by the Office of Public Guardian on receipt of an application by an individual or organisation. It allows the person or body which holds the power to deal with the person’s accounts and pay bills.

  • Intervention Order

An Intervention Order is an order which is granted by the court, usually for a one off specific purpose, such as to allow someone else to sign a tenancy agreement.

  • Guardianship Order

A Guardianship Order is made to allow an individual or organisation to act as the guardian for an incapacitated adult. The extent of any order is set by the court.

  • Manager of Authorised Establishments

These orders are granted to the manager of an authorised establishment such as a care home, to manage the financial affairs of a person in the establishment.

  • Social Security Benefit Appointees

Social Security and Tax Credit appointees can also deal with the financial affairs of a person in relation to benefits and tax credits. These powers are not contained in the Adults with Incapacity (Scotland) Act 2000.

Capacity to Contract

It has long been established in Scots Law that a person cannot enter into a contract, such as a consumer credit agreement, such as a credit card, loan or hire purchase agreement, if their lack of mental capacity prevents them from understanding the nature of the obligation.

Whether someone can understand the nature of any financial agreement will depend on the nature of the agreement and the extent which their mental capacity has been diminished.

There is no one test of incapacity and much will depend on the decision at hand and the person’s ability to understand not only the facts surrounding that decision, but the implications and consequences of any decision.

The definition of incapacity contained in the Adults with Incapacity (Scotland) Act 2000 relates primarily to when a person can make a decision for themselves and will, therefore, be relevant when a court decides if a person had capacity to contract.

If, however, information can be provided to show that a person did not understand the facts of their situation and the transactions they were involved in, then this can be vital in showing a lack of capacity to contract.

Equally important will be the dates when any impairment of the person’s mental capacity occurred, if it is not ongoing, to evidence that it existed at the relevant times when the transactions were entered.

Such evidence will not in itself determine that a person lacked capacity, as ultimately contractual capacity is a question for a court to decide, rather than that of any medical professional, but their evidence will be important.

It will, however, be necessary to gather such evidence to support any negotiations with creditors and for people to defend any legal action raised against them.

Proving incapacity in a court, where a creditor disputes it, will require evidence, including medical evidence.

If sufficient evidence can be presented, however, and on balance shows the person lacked capacity then the effect is that the contract is void.

This means no legally binding agreement existed.

This differs radically from the position in England and Wales.

It is not necessary to show that the creditor should have known that their presumption of capacity was unsafe, because by law they are entitled to make that presumption, providing there is no obvious reason they should not have relied upon it.

The logic behind this is, as the person lacked capacity to understand, there cannot have been any agreement and, therefore, any contract, as contracts require the agreement of both parties.

This raises the question of whether a person who has been incapacitated can later ratify or consent to an agreement if they regain their senses and the ability to make decisions.

An example may be the case of someone who has a credit card and suffers from a bi-polar disorder. They may lose capacity and during that period spend money on their credit card.

They then continue spending once they regain their capacity.

If the agreement had been entered into when the person was not incapacitated, then it is clear the agreement is not made void by the later incapacity, but does not mean any transactions occurring after the incapacity cannot be challenged.

Where the person lacked capacity at the time they entered the agreement, then the agreement is void and the effect is there is no agreement to ratify.

Courts may, however, take the view the debtor adopted the transactions with their later conduct.

As this issue has never been decided,the safe course of action is for the person to always renounce transactions to the creditor, by bringing it to their attention, once they regain their capacity and make no further transactions.

Even where an agreement is void, however, a person can still be held liable for the price of such goods, where those goods are necessaries, such as food or clothing.


A person’s mental capacity to enter transactions can also be lost by intoxication, whether such intoxication is the result of alcohol or drugs.

The level of intoxication, however, has to be substantial and must deprive the client from the exercise of reason.

They must not be able to understand what they are doing.  Intoxication may be relevant for mental health clients where the intoxication arises from prescribed medication or substance abuse and the accumulated effects of the reduced capacity, which results from their mental illness and intoxication, means they are not able to exercise reason.

In the case of intoxication, contracts are not automatically void, but can be annulled by the court providing once they regain their senses, the client takes steps to avoid what they have done and notify the creditor. It is not necessary for the creditor to have been aware of the client’s intoxication.

Facility and Circumvention

Another possible defence that may be available to a debtor suffering mental illness is facility and circumvention, although it may be harder to prove this than arguing the debtor lacked mental capacity.

Facility and circumvention is a defence that may be available to someone who suffers a degree of diminished capacity, but not to the extent that they are incapacitated. They, therefore, may understand the agreement they have entered.

It will, however, be necessary to demonstrate the person suffered a weakness of mind at the point they entered the transaction. Such a weakness can arise from mental illness, old age and physical infirmity.

Such weaknesses can also be temporary and arise from some trauma or distressing event such as bereavement.

It may be that where the client is intoxicated, but not to the extent they lack reason, they could still be considered to have a mental weakness. It is also necessary to show the other party to the agreement took dishonest advantage of this weakness, to obtain the client’s agreement, and that the person suffered some loss or harm as a result of the circumvention.               

An example of this may be bank staff persuading a person to pay off a deceased partner’s loan, as it’s what they would have wanted.

Where the weakness of mind is great, the amount of evidence required to prove the person’s will was circumvented will not be as great as would otherwise be required and vice versa.

Such contracts are not automatically void, but can be annulled by the court.

Whether it would be advisable to use such a defense now is debatable and a debtor may be better advised to consider requesting an order under S140B (unfair relationship test) of the Consumer Credit Act 1974.

This would allow the court to look, not only at the circumstances, in which the agreement was made, but also the events afterwards and how the creditors enforced the agreement.

Alternatively,  a complaint could be made to the Financial Ombudsman Service. The Ombudsman can be more flexible in what remedy they could provide, even if they felt the circumstances did not merit the agreement being annulled.

Disputing liability

Once it is clear there are issues relating to a person’s liability for their debts, it is necessary to consider how best to dispute such liability.

Much will depend on the person’s view and preferences and also the conduct of the creditors. Clearly, negotiation and requesting a write off will be less stressful than taking legal action, but another option may be the creditor’s own complaint procedure and the Financial Ombudsman Service.

Where creditors raise court action, clients may be forced to defend the case, although if the issue of capacity is disputed the onus will be on the person (or someone on their behalf) to defend the action to demonstrate they lacked the capacity and the issue may become a matter for evidence to be led.

A cautious approach to legal action should be taken, considering there could be cost implications and such action may have a detrimental effect on the person’s  well-being.

Specialised legal advice should be sought.

Enforcement of Debts and Mental Capacity

Scots law, however, also provides a number of other protections in relation to the enforcement of debt, where evidence of the debtor’s mental capacity may be relevant.

Unduly Harsh

It is often commented in Scots Law that Diligence, or legal enforcement action, is coercive and, therefore, unavoidably harsh. This does not mean, however, that diligence should be ‘unduly harsh’.

Provision exist in relation to “unduly harsh”  in the diligences of attachment and exceptional attachment, money arrestment and actions of arrestment and furthcoming otherwise known as bank arrestments.

There is no statutory definition of what constitutes ‘unduly harsh’ and it is a matter of fact to be dealt with by the Sheriff.

It is probably safe to state that where there are factors that make the execution of diligence harsher than normal, it may be considered unduly harsh.

Clearly it is for the sheriff to decide, but where a person is suffering from a lack of mental capacity, the harsh effect of diligence could be exacerbated as a result.

Evidence that a person is suffering from a lack of mental capacity is, therefore, relevant. Equally evidence that there are members of a person’s  family suffering a lack of mental capacity is also relevant, particularly where the person’s family will be affected by the diligence.

The successful use of such arguments in any application may result in the release of attached items or the release or restriction of any arrested funds.


In actions relating to the eviction of tenants for rent arrears, evidence of a person’s mental incapacity  can be considered by the courts. Section 16 of the Housing (Scotland) Act 2001, in relation to Scottish Secure Tenancies, requires the court only to make an order for recovery of possession if it believes it is reasonable.

In determining whether any eviction is reasonable the court has wide discretion to consider a number of factors including the effect any eviction will have on the tenant and their family. In such cases, where it can be shown tenants are in a position to begin making payments towards arrears, evidence of mental incapacity in the home may be relevant information which prevents the court granting an order for eviction.

In relation to homeowners facing repossession it can be important to place evidence of mental incapacity before the court during an application to suspend an action for repossession under the Conveyancing and  Feudal Reform (Scotland) Act 1970.

When considering such an application courts should have regard to any circumstances which may have resulted in the person defaulting on their loan.

A court, therefore, could consider the home owners mental incapacity, where the person’s ability to manage their affairs has arisen from such a lack of capacity.

The courts also have to consider the person and their family’s ability to secure reasonable alternative accommodation. Where this will be a problem and the consequences of not being able to do so could further exacerbate any mental incapacity,  it should be brought to the courts attention.


In bankruptcy, the mental capacity of a debtor or any of their family members may be relevant where the court has to decide whether to grant an order allowing a trustee to sell a family home. The Court is required to consider all the circumstances of the case including the needs of the family members and the person who is bankrupt.

Where such an application is made the sheriff may refuse to grant the order or postpone it for as long as they consider reasonable, up to a maximum period of 3 years.


In conclusion, a person’s mental capacity is an important factor when helping people with their debt.

To not do so could deny the person access to possible defenses.

Where there are communication problems it is important to  support the person and help them maximize their communication abilities where possible.

It is also necessary to ensure persons understand their own personal financial circumstances and can weigh up the advantages and disadvantages of the options that are being presented to them and assess any risks.

Even where this is possible, it is important to be aware a person’s mental incapacity may prevent them from acting.

If others purport to act on behalf of a person, it is necessary to ensure they have the necessary authority to do so.