Whether you are suffering from a chronic illness or faced with an accident resulting in a hospital stay, people must take on the burden of medical expenses at some point. In fact, 25% to 50% of bankruptcies include medical debt. One of the most popular topics discussed throughout the news is healthcare. In the most recent democratic debate, presidential candidate Bernie Sanders addressed the topic of “medical bankruptcy,” stating that large medical bills often drive people to file for bankruptcy. While Sanders reported that approximately 500,000 individuals file for bankruptcy due to medical expenses, research suggests otherwise. The statistic reported by Sanders comes from a study conducted by the American Journal of Public Health, which concluded about 530,000 people felt their medical expenses contributed to their bankruptcies, but were not the singular cause for filing, unlike Sanders suggestion. This continues to be a discrepancy that often shows up in the topic of medical debt. While medical debt can contribute to filing for bankruptcy, it is rare for it be the sole reason one enters into a bankruptcy filing.
Sanders is not the first politician to attempt to reduce medical costs. Programs, such as the Affordable Care Act and Medical Bankruptcy Fairness Act, have been enacted to help ease medical costs and make care more affordable. These acts were created to prevent people from having to take extreme actions, such as bankruptcy, in the face of healthcare costs. However, when looking at the total number of bankruptcies filed, the amount filed as a result of medical expenses is small. The developed policies are based on research showing that 60% of all bankruptcies in the U.S. are due to medical related issues. However, a 2014 study concluded that 20% of U.S. adults face medical debt but only 1% of Americans file for personal bankruptcy. This research suggests that when looking at hospital admissions and their effect on bankruptcy, the rate of bankruptcy does increase years after a hospital stay but resulted in only 4% of bankruptcies among non-elderly adults. Since this is an ongoing issue, these studies are constantly being conducted. However, we are still able to reach a general consensus that while medical costs can create a large financial burden and it can contribute to filing for bankruptcy, is rarely the sole reason one may file.
DOES “MEDICAL BANKRUPTCY” EXIST?
Many often use the term “medical bankruptcy” to explain filing for bankruptcy as a result of their medical expenses. While medical debt can contribute to bankruptcy, “medical bankruptcy,” is not an actual type of bankruptcy that you file for. When it comes to filing for bankruptcy, it is not possible to file a “medical bankruptcy”. Regardless of the reason you are choosing to file bankruptcy, you are required to list all debts, property, and real estate that you own. You cannot pick and choose which items you wish to have discharged. The bankruptcy code treats medical debt just as it would, for example, credit card debt. Depending on the state of your other debts, it is not always the best idea to file for bankruptcy due medical debts only. Speaking with a knowledgeable attorney is recommended.
WHAT ARE THE CHANCES OF EXPERIENCING MEDICAL DEBT?
Medical debt can stem from many issues. However, when it comes to determining the impact of these costs, one time medical events, such as an accident, were more problematic than bills for treatment of chronic illnesses or disease. According the Kaiser Family Foundation and the NY Times, two-thirds of adults surveyed reported that their bill trouble was the result of a one-time hospital stay or treatment due to an accident, while one-third reported to having accumulated over time due to an ongoing illness. Another factor towards medical debt is insurance. The Affordable Care Act allows for children to be eligible for coverage on their parents’ plan until the age of 27. The most medical debt has been found to be in this age group of young adults who are now taking on their own payments. As age increases, people are more likely to have health insurance, and their medical debt decreases.
AVOIDING MEDICAL DEBT
While medical costs are inevitable, there are several ways to prevent these payments from causing a bankruptcy case. One of the biggest problems people face is that they do not have enough money saved for medical purposes. It is a good idea to build up a savings fund of about 6 months of living expenses. This will allow you to accumulate money over time and not be faced with taking extreme measures during times of medical trouble. Another useful tip is to work with your medical provider on negotiating your bill. It is also important to pay attention to what is covered by your insurance. Going to providers that are out of your network can result in hefty bills that will not be covered by insurance companies. Lastly, avoid paying for large medical bills with a credit card. Instead, see if you can work with your provider to develop a payment plan or open a personal loan, if you have good credit.
CHAPTER 7 VS. CHAPTER 13
If you ultimately decide to file for bankruptcy, it is important to know the differences between Chapter 7 and Chapter 13. Chapter 7 bankruptcy yields different outcomes for medical debt than if filed under Chapter 13.
One benefit of filing under Chapter 7 is that you receive relief nearly immediately. 90 to 120 days after filing, debts may be discharged and creditors can no longer demand money. However, Chapter 7 can have a dramatic impact on other factors. By filing for Chapter 7 bankruptcy, you have the potential risk of losing your home and assets. Filing for bankruptcy does not allow for only certain debts to be focused on. While your medical debt could be cleared, your other debts could be affected. Credit scores also take a hit. In addition, filing for bankruptcy can make it more difficult for you to receive medical treatment. Doctors reserve the right to deny care to those unable to pay.
Chapter 13 bankruptcy also have many consequences but are different than Chapter 7. Chapter 13 allows you to set up a repayment plan and work towards relieving your debts. By making payments, you are able to maintain a better relationship with health providers since they are collecting what you owe instead of having it discharged. Chapter 13 has less of an impact on credit than Chapter 7, only impacting scores for 7 years, as opposed to 10 years.
ALTERNATIVES TO FILING FOR BANKRUPTCY
If medical debt becomes an issue for you, there are several actions that can be taken instead of filing for bankruptcy. For example, when dealing with hospital bills, it is possible to negotiate with the hospital and use methods, such as credit counseling, to help create a payment plan so that you are able to make payments over time instead of at once. Credit counseling differs from a debt settlement by providing a free alternative that does not create additional problems. Credit counseling programs working as nonprofit organizations to provide free services are required when filing for bankruptcy.
If you ultimately decide to file bankruptcy and your medical debts are discharged, along with the rest of your unsecured debts, you will not necessarily lose your doctor. The Emergency Medical Treatment and Active Labor Act of 1986 prevents hospitals from refusing treatment to patients who are unable to pay for services. However, medical providers, like your primary physician, do have the right to refuse treatment if you are unable to pay. While this usually does not happen, you will still have access to other providers in your area.
If you are facing medical bills and are considering filing for bankruptcy relief, please contact Sacramento Bankruptcy Lawyer Pauldeep Bains to discuss your matter.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.
