Medical bills and bankruptcy

Medical BankruptcyThe high cost of medical care is definitely taking its toll on Americans.  Recent research shows that as many as one in five Americans is part of a family facing unpaid medical bills.

Medical bills on credit reports

A December 2014 study by the Consumer Financial Protection Bureau (CFPB) found that as many as “43 million Americans have overdue medical debt on their credit reports.”  The CFPB found that most accounts designated for collection “result from unpaid medical bills rather than unpaid loans.”  According to the report “[a] large portion of consumers with medical debts in collection show no other evidence of financial distress and are consumers who ordinarily pay their other financial obligations on time.”  The CFPB observed that unlike other debts “[m]edical debt can result from an event that is unpredictable and costly, such as a sudden accident or illness.”

Findings by Robin A. Cohen, Ph.D. and Jeannine S. Schiller, M.P.H. of the National Center for Health Statistics report a similar number of Americans struggling with medical bills.  In a June 2015 report these researchers found “[i]n the first half of 2011 through the first half of 2014, approximately one in five persons under the age 65 was in a family that had problems paying medical bills in the past 12 months. . .”  While their report shows that this number has steadily declined since 2011, as many as 44.5 million Americans under 65 are still part of a family that is having problems paying medical bills.

 Bankruptcy due to medical bills

Daniel A. Austin, a professor at the Northeastern University School of Law conducted his own research on the number of bankruptcies that are due to medical bills.  The research, published early in 2015 established that medical bills are the single largest cause of consumer bankruptcy.  Austin concluded that medical debts are the main factor in 18 percent of all consumer bankruptcies.

Along those same lines, NerdWallet Health, a division of a personal finance advisory website, concluded that unpaid medical bills are the leading cause of personal bankruptcy.  NerdWallet Health estimates that the financial strain of medical debts is much higher than reported by Professor Austin.   Their March 2014 estimate was that three out of five bankruptcies in 2014 would be due to medical bills.  In a March 2014 statement Christina LaMontagne of NerdWallet Health concluded that “medical bills are the leading cause of personal bankruptcy.”

If you think that only Americans without health insurance end up in this predicament, think again. NerdWallet Health estimates that nearly 10 million Americans aged 19 – 64 will face medical “bills they are unable to pay,” “despite having year-round health insurance.”

This should come as no surprise as rising healthcare costs have significanlty outpaced the rise of other consumer prices over the last decade.  Given this fact combined increased reliance by Americans on inadequate high deductible insurance, there seems to be no end in sight to the persistent problem of unpaid medical bills.

What should you do if you are facing unmanageable medical bills?

If you are facing financial stress from medical debts it is better to seek help sooner rather than later.  Regardless of the decisions you ultimately make, you will likely obtain a better outcome if you are fully advised of your rights on the front end.  A common mistake made with unsecured debts like medical bills is drawing down retirement accounts protected in bankruptcy to pay medical bills that are readily wiped out by bankruptcy.

What is a medical bankruptcy?

Bankruptcies that are caused by medical bills are often referred to in studies and in the media as “medical bankruptcies.”  When it comes to actually filing a bankruptcy with the Court, however, there is no such thing as a medical bankruptcy.  In the legal context, bankruptcies are usually referred to by their particular chapter within the bankruptcy code (i.e. Chapter 7, Chapter 11, Chapter 12, Chapter 13).  The use of the term “medical bankruptcy” often leaves the impression that you can file a bankruptcy that only deals with medical bills.  But is it actually possible to do this?

Can you file bankruptcy only on medical bills?

The answer is no.  Bankruptcy laws prohibit individuals from including or excluding a particular creditor or type of creditor in a bankruptcy proceeding.  Although you do have some say in the way certain debts are handled, you are required to report all debts you owe in your bankruptcy filings.  This gives all of your creditors fair notice so that they can sort out their claims through the Court in an orderly fashion.  In bankruptcy medical bills are typically classified as unsecured debt.  This means that they are typically included with other unsecured debt such as credit card debt and are commonly wiped out in a bankruptcy.  While this type of debt is treated differently in bankruptcy than other debts like mortgages or student loans, the different treatment is based on well established, time tested bankruptcy laws.

Will a medical bankruptcy hurt my relationship with my current medical providers?

Many worry about the effect a bankruptcy will have on the relationship they have with their current medical providers.  For some this can be resolved after bankruptcy.  After a bankruptcy is complete, there is nothing stopping you from making voluntary payments to your doctor even though the unpaid medical bills have been formally discharged or wiped out.  This may be a sensible approach especially if the bulk of your medical bills are mostly hospital bills or bills from providers who you do not know, with the bill of your regular doctor making up only a small part of the total.  For those with insurance, your doctor is still likely receiving payment from the insurance company, just not the co-pay that you personally owe.  While your doctor may be able to refuse you treatment, you must decide whether they are likely to do so.  Even if  you think your doctor will refuse you treatment because of a bankruptcy, you need to decide whether your relationship with that particular doctor is worth the burden that your medical bills are placing on you and your family.

If you are facing unmanageable medical debt or medical bill collections it is important to contact an attorney to find out how Mississippi law applies to the specific facts of your situation.  To schedule an initial free and confidential consultation to discuss your particular situation call 601-853-9966.