Medical Bankruptcy - Pros and Cons
Medical Bills Causing Serious Personal Debt for Millions
Jul 5, 2009
A Harvard University report due to appear in the August 2009 issue of The American Journal of Medicine stated that 62% of all chapter 7 and chapter 13 bankruptcies took place due to unaffordable medical bills. Steffie Woolhandler, M.D., of Harvard Medical School, stated that: "If an illness is long enough and expensive enough, private insurance offers very little protection against medical bankruptcy, and that's the major finding in our study."
Advantages of Medical Bankruptcy
- Clear debt. Filing for medical bankruptcy allows someone with unaffordable medical bills to clear personal debt and secure a fresh start. Filing under chapter 7 allows a person with no non-exempt assets to be debt free within a few months.
- Protect primary residence. The majority of homeowners will be able to protect their primary residence by declaring medical bankruptcy. Only very expensive homes can't be excluded.
- Credit card debt. It is possible to clear all forms of personal debt, including credit card balances.
- Collection agencies. Filing for bankruptcy means that neither a creditor or collection agency can legally pursue the debtor for repayment. Full court protection is provided.
- Poor health. It may not be possible to get a job when recovering from a serious medical condition. Clearing medical bills through insolvency may be the only reasonable course of action.
- Income-to-debt ratio. Insolvency will mean that an income-to-debt ratio improves. This means that a consumer will have a higher disposable income each month.
- Peace-of-mind. Eliminating personal debt provides genuine peace-of-mind. Healthcare concerns are not going to be helped by financial difficulties.
Disadvantages of Medical Bankruptcy
- FICO score. Insolvency will have a negative effect on a credit score for up to 10 years. However, provided other monthly repayments are made punctually, a FICO score will start to improve after as little as 2 years.
- Borrowing money. The cost of a loan or mortgage refinancing will not only become more difficult, it will now be far more expensive.
- Pre-existing medical conditions. Having no health insurance will mean that the illness that caused the personal debt will now constitute a pre-existing medical condition and be excluded from coverage. If future medical bills are incurred, under current laws, medical bankruptcy cannot be declared for a further 7 years.
- Publicity. The insolvency will be made public in a newspaper. However, there are so many chapter 7 and chapter 13 bankruptcies that most people will neither know or care.
Rising medical bills, combined with no health insurance, has created a mountain of personal debt for millions of U.S. citizens. If it is not possible to get charitable assistance, secure a reduction in healthcare costs or reach a satisfactory repayment plan medical bankruptcy could provider the answer. It is important to consult a qualified debt counselor before proceeding with any debt solution.
Sources
Tamkins, Theresa. (June 5, 2009). "Medical bills prompt more than 60 percent of U.S. bankruptcies." CNN News.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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