When it comes to personal bankruptcy, many people assume that it’s caused by over-use of credit cards or expensive mortgages. However, statistics show that three out of five bankruptcy cases are filed due to overwhelming medical bills. Often, to keep from losing some types of real property, filers will enter into Chapter 13 bankruptcy. This topic may be of interest to Florida readers due to the lingering effects of the recession in the state.
The estimated number of households filing for bankruptcy this year due to medical bills is slightly lower than previous years. However, the issue continues to plague 11 million individuals who will create more credit card debt by paying medical bills with high interest cards. Another 15 million will empty their savings accounts in an effort to pay medical expenses. This will leave another 10 million unable to pay for basic expenses.
While it may help, the Affordable Care Act will not totally solve the problem. More people will have coverage, but the average family in the United States makes about $50,000. Companies are increasingly turning to high deductible insurance plans with out-of-pocket maximums that can be as high as $10,000. Such a high deductible is often unmanageable for average income households.
Chapter 13 bankruptcy filings are often used when individuals don’t qualify for a Chapter 7 filing that completely wipes away most unsecured debt as soon as the case is discharged. Chapter 13 is a long-range plan that allows the filer to pay back a percentage of their debt based on an income formula. Payments are made to a bankruptcy trustee over a period of three to five years. A bankruptcy attorney may be able to assist those in economic difficulties by reviewing the situation and explaining which parts of the Bankruptcy Code may be able to help them.
Source: NBC news, “Biggest cause of personal bankruptcy: Medical bills”, Dan Mangan, June 25, 2013