Introduction
Medical bills are a factor in 50% of bankruptcy cases. There’s no doubt that filing for bankruptcy is a big decision. But sometimes this decision is facilitated by issues beyond our control, such as an accident or the development of an illness that leads to massive medical bills.
Bankruptcy is often viewed as a failure or a moral judgment issue. But think about the U.S. Constitution, which grants Congress the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States” (Article 1, Section 8, Clause 4). Even our founding fathers recognized the need for a mechanism to help people escape unmanageable debt and get a fresh start moving forward, enabling them to become contributing members of society. In short, bankruptcy is good for the economy.
What is Medical Bankruptcy?
There is no strict definition of medical bankruptcy. Most people believe that medical bankruptcy is the situation in which one files to get rid of hospital and doctor bills that can amount to thousands upon thousands of dollars for many individuals. But it can run deeper than that. Even if a patient’s bills are covered, a person can experience medical bankruptcy due to loss of income when forced to take time off work after an accident or illness.
A key factor in the decision to file for bankruptcy for many individuals is overwhelming medical debt. Certainly, some people accumulate massive medical debt because they lack health insurance. But it’s not just those without insurance who find themselves in a tight financial corner. Medical insurance premiums can be extraordinarily high. Even policies available through the Affordable Care Act marketplace can only be accessed because insurance companies have set the policy limits very high. It’s not uncommon for the minimum deductible to be $10,000 for an individual or $20,000 for a family or more. That is the amount you will have to pay out of pocket before the insurance company will cover any further medical bills.
It can be difficult to determine from bankruptcy filings whether a particular case constitutes medical bankruptcy. Nowhere in the bankruptcy paperwork is the debtor (the person filing for bankruptcy) required to state the reason for filing for bankruptcy. The debtor is required to list all debts, including hospital bills. By looking at the list of creditors and account balances, we can get a hint as to whether the debts are numerous and substantial. At the debtor’s meeting with creditors, the debtor is often asked about the reasons that led to the decision to file for bankruptcy.
College Study
In a notable study conducted by Senator Elizabeth Warren while serving as a professor at Harvard Law School, medical bills were a factor in over 62% of bankruptcy cases. A study published by Nerdwallet Health in 2014 found that medical bills are expected to be the most significant factor in bankruptcy, more than credit card debt or mortgages. Either way, the amount of medical debt discharged in bankruptcy cases in the United States each year totals in the hundreds of millions.
Medical Debt is Dischargeable in Bankruptcy
Fortunately, this debt is dischargeable in regular bankruptcy cases (Chapter 7) and repayment plans for bankruptcy (Chapter 13). You may need to qualify for a Chapter 7 filing under the means test, which is a calculation using your income and expenses to determine whether you can afford to make payments. If you do not pass the means test, you can file a Chapter 13 case and pay some of the debts over a period of three to five years.
Does
Do I Really Need to File for Bankruptcy to Get Rid of Medical Debt?
If your debts are primarily medical and you’re not behind on your house or car payments, child support, or alimony, then filing for bankruptcy may not be necessary. Here are some reasons why:
- Medical creditors are often more willing to work with you compared to other types of creditors with different kinds of debts.
- Medical bills will generally stay with the hospital’s or doctor’s billing department for as long as possible before being sent to a collections agency.
- Often, your doctor or other healthcare provider will agree to accept a very small amount each month, even $5 or $10.
- In some cases, especially if the hospital or doctor is treating a patient with Medicare or Medicaid, the providers may not even care to follow up after sending the bill.
- Medical creditors rarely report to credit bureaus, so the debt is unlikely to significantly impact your credit score.
You may be safe attempting to negotiate payment agreements with your medical creditors instead of filing for bankruptcy. You won’t lose much by trying, but if you cannot reach any satisfaction through dealing with your creditors, there will be Chapter 7 or Chapter 13 to handle the matter on your behalf.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we check facts and maintain the accuracy, reliability, and quality of our content.
David U. Himmelstein, Deborah Thorne, Elizabeth Warren, Steffie Woolhandler. “Medical Bankruptcy In The United States, 2007: Results of A National Study,” American Journal of Medicine.
PR Newswire. “NerdWallet Study Finds American Consumer Medical Debt Crisis Worsening.”
Experian. “Bankruptcy: Chapter 7 vs. Chapter 13.”
Source: https://www.thebalancemoney.com/practical-steps-to-file-medical-bankruptcy-4158129
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