If you guessed the biggest source of bankruptcy in America is credit card bills or home mortgages, you are wrong. Many recent studies show medical debt is the biggest cause of bankruptcy in the United States. While Obamacare aims to make medical insurance more affordable, many of us still cannot afford to pay for health insurance or quality healthcare. Many of our clients have anywhere from a few thousand dollars in medical debt to tens of thousands of dollars in unpaid medical bills. Often, these are individuals who thought they had been prepared and protected themselves by getting health insurance.
But, as most of us well know, life happens. All it takes is a short series of unfortunate events – a child falling ill, an auto accident, a job loss, a pay cut or unforeseen surgery. People get rude shocks when they find out that they didn’t have the coverage they thought they had or that insurance did not cover the whole cost of the treatment or procedure they needed. Some of our clients were in between jobs and medical coverage when they needed urgent medical treatment. Even though they had health insurance before and after the treatment, a short lapse in insurance coverage is enough to rack up enormous medical bills.
The Enormity of the Problem
According to NerdWallet Health, bankruptcies resulting from unpaid medical bills affect nearly 2 million people. Healthcare has become the number one cause of bankruptcy filings in the U.S. outpacing bankruptcies due to credit card bills or unpaid mortgages. NerdWallet also estimated that households containing 1.7 million file for bankruptcy each year. Outside of bankruptcy, about 56 million adults, who account for more than 20 percent of the population between the ages of 19 and 64, will still struggle with medical bills, NerdWallet found.
Even the 10 million adults who have year-round insurance will accumulate medical bills they can’t pay, the website estimated. The reason for this serious problem is that for an average American family that brings home about $50,000 in income, a high medical bill coupled with a high-deductible insurance plan can very quickly become overwhelming. Most of these plans have out-of-pocket maximums of $10,000 or more, a tough pill to swallow for millions of middle-class American families.
Can Filing for Bankruptcy Help?
When you file for bankruptcy, your debts are compartmentalized into different categories. In some circumstances, student loans can be discharged in a bankruptcy. Thankfully, it is possible to eliminate medical debts in a bankruptcy as well. In a bankruptcy, medical bills are viewed as unsecured debts, much like your credit card bills. What this means is that medical bills aren’t a top priority and there is a possibility that filing for bankruptcy could give you relief.
You may be able to eliminate your medical debt by filing for either Chapter 7 or Chapter 13 bankruptcy. If you qualify to file Chapter 7, your medical debt will be erased along with all other general unsecured debts. There is no limit to the amount of medical debt you can discharge in a Chapter 7 bankruptcy. That said, in order to qualify for a Chapter 7, your disposable income must be low enough to pass what is known as a means test. The means test is basically a formula that keeps individuals or entities with higher income from filing for Chapter 7 bankruptcy.
In Chapter 13 bankruptcy, medical bills are added to other unsecured debts as part of your repayment plan. The amount you must pay each month to your creditors will be set in bankruptcy court and the amount will depend on our income, expenses and nonexempt assets. You may not qualify for Chapter 13 bankruptcy if your medical and other debts exceed the allowed debt limits for Chapter 13.
What Can You Do?
There are a number of steps you can take if you are facing mounting medical bills and are considering filing for bankruptcy. First, meet with an experienced bankruptcy lawyer, who can tell you if you qualify for Chapter 7 or Chapter 13. Before you file for bankruptcy, you may want to consider getting credit counseling through a counselor who can help you create a budget and discuss alternatives to bankruptcy. We as attorneys can review your options and help you pursue those options.
You would need to provide your lawyer with proof of income, records of your medical bills and other documents. Once you discharge your debts, you can rebuild your credit. A Chapter 7 bankruptcy usually stays on your credit report for 10 years. However, that does not mean your credit is damaged. When you pay your bills regularly, it is entirely possible to rebuild your score and get your life back. You can get a 700-750 credit score in a year or two after you file bankruptcy.
The Continuing Healthcare Challenge
As a nation, we could put a man on the moon, but we can’t seem to bring affordable medical insurance and healthcare to all Americans. It’s amazing to me that a country as powerful and as wonderful as ours, which is filled with knowledge, wealth and talent, can’t figure out a program to provide affordable medical care to everyone. Maybe we should put NASA on the project!
Whatever you chalk your medical bills up to — a bad mistake, the insurance company taking advantage of you, an unfortunate accident, or unfair treatment — you have options to overcome this problem. You should never jeopardize your home, retirement, children’s education or your own future trying to pay medical bills. Before you raid your 401(k) or retirement accounts, take a second mortgage on your house, or go without insurance, food, or other necessities, to pay large medical bills, stop to explore your options.
While bankruptcy is not a “one size fits all” solution to every financial problem, it has been a lifesaver for millions of good, hardworking families who hit a rough patch in their lives. An experienced bankruptcy attorney AZ can review your financial situation and determine whether filing for bankruptcy may be able to help you and your family. Call us at 480-745-1770 to find out how we can help you.