Americans spend trillions of dollars on health care every year and medical debt is one of the leading causes behind the number of Americans filing for personal bankruptcy. In fact, some studies have found that it is a factor in two-thirds of all personal bankruptcy filings.
Health care debt, mortgage debt and job loss
It’s important to recognize that, for many people who file for bankruptcy, medical debt is one of several factors causing their financial distress. Other leading causes cited for bankruptcy filings are job loss and mortgage payments. Combine any two of these factors, or all three of them, and you have a recipe for severe debt problems.
Since most Americans get their insurance through their employers, many Americans lose their coverage when they lose their jobs. These workers can extend their coverage through COBRA insurance, but the cost is much higher because their employer is no longer required to pay a share of it. Many simply can’t afford it and decide to go without insurance. If they should get sick or injured while they are uninsured, their medical costs can spell disaster.
Health care debt can also interact disastrously with mortgage debt. Some studies say that as many as 17% of Americans who file for bankruptcy because of medical debt face a choice of either filing for bankruptcy or losing their homes.
Is bankruptcy the best choice for you?
Bankruptcy is the most powerful tool available to eliminate medical debt, but before you avail yourself of it, you should ask yourself if it’s the right choice for your situation.
If medical debt is the only thing causing your financial problems, you may want to try other forms of debt relief before filing for bankruptcy. With professional help, you may be able to negotiate a way to reduce your medical bills.
If that kind of negotiation won’t work, or if your debt problems are complicated by multiple factors, you may find that personal bankruptcy is a better option. The next question is what kind of bankruptcy is right for you.
If you have a steady source of income, Chapter 13 bankruptcy can be a good choice. It provides you with protection from your creditors while you work through a plan to repay your debt within three to five years. At the end of the period, if all goes well, the court will eliminate much or all of your remaining debts.
If you don’t have a steady source of income, your financial situation is much more precarious. You may be a better candidate for Chapter 7 bankruptcy protection, which can help you eliminate most types of debt in a matter of months.
Both these types of bankruptcy have their own eligibility requirements, advantages and disadvantages. It’s a good idea to seek out professional advice to learn how to get out from under your crushing medical debt.