If you were to ask the average person why people file for bankruptcy, you might get an answer that involves unnecessary spending on credit or irresponsible financial behavior. In reality, bankruptcy is often necessary even for those who have carefully balanced their budget and who avoid credit card debt.
One of the leading causes for bankruptcy filings in the United States isn’t credit card debt. It’s medical debt. If you find yourself struggling to maintain financial stability because of an accident or an unexpected illness when you didn’t have insurance or had mediocre insurance, you are absolutely not alone.
How often do medical costs push people into bankruptcy?
According to an analysis of self-reported reasons for filing bankruptcy, roughly two-thirds of Americans seeking the protection of bankruptcy cite medical cost as the primary reason for their filing.
Some of these people experience medical issues while they don’t have insurance, which means that they have to pay huge costs that they may have no way of handling, especially if the condition that resulted in medical bills also prevents them from working. Quite a few people who end up filing for bankruptcy because of medical debt actually had insurance but still can’t manage their share of costs.
For example, cancer patients may find that the most effective treatment available is also new and therefore not covered by their insurance company. Others may have high coinsurance rates that leave them responsible for 20% or even 30% of the medical bill after their insurance pays. Either of these situations could leave people unable to cover their expenses and facing increasingly aggressive collection tactics by medical providers or the for-profit collection companies that buy their debt.
Bankruptcy can help you move past medical debt
Regardless of what form of bankruptcy you choose to file, the goal is to seek a discharge of unsecured debt at the end of the process. Medical debts are typically among those unsecured debts.
Those who can’t make payments on medical accounts or who have received legal notice that a medical provider or collection agency intends to take action — such as placing a lien against their house — may want to consider if bankruptcy could help them regain control of their lives.