Bankruptcy Law Blog

Monday, July 31, 2017

Medical Debt Is One Of The Biggest Drivers Of Bankruptcy

One of the scariest things about having a medical emergency or lingering illness is the pile of bills that comes along with it. Just when you need to focus your energy on healing, your attention is drawn to the ever-increasing stack of bills the mailman has dropped off. 

Even if you have insurance, out-of-pocket medical costs can accumulate quickly. A recent article in the Atlantic Monthly reported that “half of all insurance policy-holders faced a deductible, the amount people need to pay on their own before their insurance kicks in, of at least $1,000. For people who buy their insurance via one of the Affordable Care Act’s exchanges, that figure will be higher still: Almost 90 percent have deductibles of $1,300 for an individual or $2,600 for a family.”

Beyond these predictable costs are surprise costs that come up when a provider recommends a test, procedure, or medication that is not covered by insurance, or you are forced to seek treatment out of network. Few families can absorb such a financial shock without resorting to drastic measures. That same article in the Atlantic also discussed the latest Report on the Economic Well-Being of U.S. Households, an annual survey conducted by the Federal Reserve Board, which found that “44 percent of adult Americans claim they could not come up with $400 in an emergency without turning to credit cards, family and friends, or selling off possessions.”

Earlier this year, the Consumer Financial Protection Bureau reported that medical debt was the most common reason for someone to be contacted by a debt collector. One reason debt collectors might be particularly aggressive when it comes to medical debt is the fact that it is unsecured debt. There is no collateral that your creditor can come take away from you because it is not like they can take back the treatment you have already received like an auto loan lender can repossess a car.

Despite the fact that financial trouble often follows medical issues, bankruptcy and debt renegotiation are the only real options available to those who are struggling.

Because medical debt is unsecured, it is treated much like credit card debt, another common type of unsecured debt, during the bankruptcy process. If you file for Chapter 7 bankruptcy, any medical debt that remains after your assets are liquidated to repay creditors will be forgiven. If you file for Chapter 13 bankruptcy, you will be put on a repayment plan and you may end up paying back all the medical debt that you owe over a period of years.

It is important to note, however, that bankruptcy is a drastic response to medical debt. Many people are able to negotiate lower debts and more friendly repayment plans with their medical service providers because providers would rather get a little bit of money paid back to them than get pennies on the dollar when a patient files for bankruptcy. Negotiation is always worth a shot because the worst thing a provider can say is no.

An experienced bankruptcy attorney can help you figure out what your options are if you are struggling to pay off medical debt.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

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