bankruptcy filing for chapter 7: What You Need to Know

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Bankruptcy: Filing for Chapter 7 Due to Medical Debt

When we think of bankruptcy, we often think of people who have run up outrageous amounts of debt from credit cards, poor spending habits, and living way beyond their means which results in the unfortunate situation of having to go through bankruptcy. Filing for chapter 7, though, is often a decision made by people who are buried under medical debt.

More than half of personal bankruptcies are declared by people who have enormous medical debt. The number of bankruptcy filings due to medical debt rose 2200 percent from 1981 and 2001. Incredibly, most are people who have health insurance. Groups most affected by this are seniors (those over sixty-five), single women raising children on low salaries, or women whose former partners refuse to pay child support. How does this happen?

According to Dr. David U. Himmelstein, MD., professor of medicine at Harvard medical school:

Most were average Americans who happened to get sick. Health insurance offered little protection. Families with coverage faced unaffordable co-payments, deductibles, and bills for uncovered items like physical therapy, psychiatric care, and prescription drugs. And even the best job-based health insurance often vanished when prolonged illness caused job loss -- precisely when families needed it most. Too often, private health insurance is an umbrella that melts in the rain.

The results of these medical bills can be devastating, such as foregoing additional medical treatment, not filling prescriptions, having trouble paying mortgage, utility and food bills. The debt does not even have to be that high: hospitals and other health care facilities often turn their unpaid debts over to collection agencies within thirty to sixty days, leaving people with little time to work out payment.

The actual number of bankruptcy filings for chapter 7 relief due to medical debt is often obscured because people try to pay off their medical bills using their credit cards. This high-interest method might work for a little while, but eventually the debtor loses control. Now he is stuck with the remaining medical debt and overwhelming credit card bills.

Is there anything you can do to avoid having getting into this situation? First, if you do not have health care and have a low income, apply for federal programs like Medicaid. Some states also have health insurance programs for low-income citizens. Vermont, for instance, has the Vermont Health Assistance Plan and Catamount Health, which require much lower payments than other insurance plans.

If you already have a medical debt, check the hospital bills and statements to make sure they are accurate. Ask for an itemized bill and make sure you received every service they claim. Also, if you are being billed for a balance when Medicaid or other insurance has paid the rest, call the insurance provider and confirm the amount they paid. It is illegal for you to be charged with the balance if they have already paid.

Try not to put the medical bills on credit cards – this is a good way to go bankrupt. Putting the debt on a home equity loan is also risky because you risk your home. Another thing: if you put a portion of your bill on your credit card, you are no longer able to negotiate with the hospital. Negotiating may allow you to create a payment plan or even lower your bill. It is easy to be intimidated when dealing with the hospital administrators, but it can be done. Hospitals can give discounts, much like car dealers. You have to ask and keep at them.

Bankruptcy is your last resort. First, consider consulting a debt settlement or reduction company. You can find reputable services that can help with your medical bills, and you will not have the stigma of bankruptcy on your credit record. In addition, if you have charged medical expenses on your credit cards, debt settlement can help you repay those as well.

That leaves bankruptcy. Filing for chapter 7 is an option and should eliminate the debt if you qualify under the means test (meaning you make under a certain amount). Consider your options carefully, though. In addition to the damage to your credit score, you will not be able to file again for six years. If you have another medical emergency, that will leave you with fewer options.