How Medical Debt Can Lead to Bankruptcy

Medical debt is a mounting concern for many Americans, sometimes leading to a financial spiral that feels insurmountable. The burden of medical bills is evident when we consider that medical expenses are one of the most common reasons individuals file for bankruptcy in the U.S. This article dives deep into the realm of medical debt and how bankruptcy can offer a lifeline to those drowning under its weight.

The Scope of the Problem

Medical debt isn’t just a minor issue. A study by the American Journal of Public Health in 2019 revealed that 66.5% of all bankruptcies were tied to medical issues — either from high costs for care or time out of work. An unexpected health crisis can plunge an individual or family into sudden financial strain, regardless of their income level or prior savings.

According to a 2021 report from the Consumer Financial Protection Bureau, there is $88 billion in medical debt on consumer credit records. 

Why Insurance Isn’t Always Enough

While health insurance is designed to mitigate high medical costs, out-of-pocket expenses can still accumulate rapidly. High deductibles, copayments, uncovered procedures, or medications can leave insured individuals facing bills they can’t afford.

Even if you have health insurance, the cost of a hospital stay in the U.S. is $2,883, which is exacerbated by the average length of a hospital day, which is 4.2 days. Obviously, some costs will be incurred by your insurance provider, but not all of them, particularly if you live in a state like California, in which the average cost of a hospital stay is nearly twice the national average, $4,181 per day.

Exploring the Bankruptcy Option

For many, filing for bankruptcy becomes the most viable option to address overwhelming medical debt. Here’s a brief overview:

• Chapter 7 Bankruptcy: This is a liquidation bankruptcy where certain non-exempt assets might be sold to repay debt. Medical debts, being unsecured, are typically dischargeable in Chapter 7. This means that upon successful completion, the debtor is no longer personally responsible for them.
• Chapter 13 Bankruptcy: Here, debtors create a repayment plan to pay back some or all of their debts over a 3-5 year period. While the medical debt might not be fully discharged, it’s often reduced and made more manageable.

Additional Benefits of Filing Bankruptcy

One of the immediate benefits of filing bankruptcy is called “automatic stay”, which is a provision that offers protection to the indebted individual from collection actions made against them. If you are already overwhelmed with a growing pile of medical debt, then the last thing you want to have to confront is an aggressive collection agency calling you to settle your debts.

Automatic stay will remove that obstacle altogether, allowing you to focus on the bankruptcy process.

Seeking Legal Guidance

Given the intricacies of bankruptcy, especially with substantial medical debt, it’s crucial to consult with a bankruptcy attorney. They can guide debtors through eligibility requirements, potential exemptions, and the long-term implications of filing. While bankruptcy may seem like  a drastic measure, for many, it represents the first step towards regaining financial stability.

If you are struggling with medical debt, then click here or call (833) 598-1595 for a free consultation with a qualified bankruptcy attorney.