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Bankruptcy and Medical Debt

There is a strong misconception that people who apply for bankruptcy are errant debtors who have spent beyond their means and are now looking for a quick fix. However, that misconception is far from the truth. Instead, many debtors are suffering from the shock of job loss or unexpected bills. And one of the main culprits is something that none of us can fully avoid: medical bills.

In fact, according to a 2009 study published in The American Journal of Medicine, 60 percent of U.S. bankruptcies are caused at least in part by medical debt. A 2007 survey by Commonwealth Fund found that nearly 41 percent of working-age Americans had medical debt. This is 72 million people, a number that is likely much higher now. The population most affected is, unsurprisingly, the elderly.

Hospital stays, medication costs, out-of-pocket expenses, co-payments, outpatient expenses, even ambulance bills - there are many costs that can build up. Furthermore, medical debt is particularly challenging because:

  • Medical debt is unexpected: While many people will save for emergencies, they usually think about the auto repairs that cost a couple hundred dollars. They rarely consider serious medical issues that can lead to thousands of dollars in medical debt.
  • Medical debt can be ongoing: A medical emergency can be the beginning of lifelong costs for a disorder or long-term illness. The monthly out-of-pocket costs can pile up over time, causing significant debt.
  • Insurance coverage is often insufficient: Many people choose lower rates of coverage and higher deductibles - or even no health insurance coverage - because they are healthy individuals. Yet, when a medical emergency arises, they find themselves burdened with the costs the insurance company will not cover.

There is a solution

Many people continue to build up debt, hoping that someday there will be relief. Yet, what if that "someday" never comes? By choosing to file for bankruptcy, individuals are choosing to be proactive in finding financial relief. Through Chapter 7 liquidation or a Chapter 13 bankruptcy plan, individuals can discharge their debt and begin to create a new, financially secure future.

Source: KUNC, "Patients Go Bankrupt As Medical Costs Soar," Erika Gonzalez, May 21, 2012.

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