If you Google the term "bankruptcy" you'll find lots of different types of bankruptcies relating to various root causes. One of those root causes is excessive medical bills, often leading to something called "medical bankruptcy." Medical bankruptcy is not a legal term for a specific type of bankruptcy. Rather it refers to the main reason an individual or company finds themselves in financial straits. It is simply a way to express that excessive medical bills are at the root of the problem.
When people find themselves facing a medical bankruptcy there are usually several things in play. Those things include a lack of medical insurance, a chronic illness, or an unexpected accident or illness. And since medical bills can reach into the thousands of dollars for even the simplest procedures, it's easy to find yourself in trouble if you don't have adequate health insurance. Even with health insurance, some chronic conditions can cause you just as much trouble.
Bankruptcies caused by excessive medical bills are all too common in the United States. In fact, according to statistics from 2010, nearly 60% of all bankruptcies have medical bills as a factor; they were also the primary factor. With the spiraling cost of hospital care, medication, specialist care, and diagnostic tests, it's not hard to see why.
Types of Bankruptcy for Medical Related Issues
Since a medical bankruptcy tends to occur with an individual rather than a business, you generally have two types of filings to choose from. The first is a chapter 13 reorganization which allows you to re-organize your finances and come up with a plan to pay off your indebtedness in a few years. Ultimately this is the preferred method of the courts because it ensures the highest likelihood that all of your creditors will be paid. However, you must have sufficient disposable income to make the plan work.
If you don't have sufficient income, or the court is not convinced you can create a viable repayment plan, you will most likely be required to file for Chapter 7 liquidation. With this bankruptcy you submit all of your qualifying assets to the court. A court ordered receiver will then sell those assets and distribute the proceeds to your various creditors as he deems fit. At the end of the process, any remaining debt that is considered dischargeable by law is wiped out.
Because bankruptcy is supposed to be a last resort for individuals, most federal courts will suggest you try alternatives first. In terms of medical bankruptcies there are some things you can do including:
- working out a payment plan with your medical providers.
- utilizing a debt consolidation service.
- applying for financial aid from healthcare institutions.
Try Working out a Payment Plan
Most medical care providers are smart enough to know that the cost of today's healthcare is skyrocketing. Many of them are willing to work out monthly payment plans that allow you to pay your balance in full. For them, it makes more financial sense to do this than to participate in a bankruptcy proceeding. They stand a far better chance of being paid in full if they can work out a deal with you. In a bankruptcy proceeding, they may only get paid pennies on the dollar.
Try calling your medical care providers and speaking openly and honestly about your financial situation. Work out a plan that you can afford, even if it's just $20 a month. Let's face it, anything is better than nothing. Just be sure that whatever payment you worked out you also remain faithful; better to work out a lower monthly payment and then be able to send extra from month to month, than to settle on a higher payment and not be able to make good on it.
Debt Consolidation Services
Debt consolidation services are a godsend for many people who find themselves in a tight financial squeeze. These organizations know that many businesses, including healthcare institutions, can accept lower payment amounts and still make a profit. What they'll do is contact all your creditors for you and negotiate lower payment amounts. Then they will take all of your bills and lump them together into a single consolidation loan. You will make payments on that loan and your creditors will be satisfied. Although this solution doesn't work for everyone, you should at least consider it as an option.
Apply for Financial Aid
Believe it or not, there are some hospitals and larger medical clinics that understand the need for financial aid for low-income patients. Just like you can apply for food stamps or heating assistance with your local or county government, you can apply for financial assistance from some medical institutions. The amount of assistance they give you will depend upon your financial circumstances and the amount you owe. But your savings could be quite significant in some cases.
For example, our research turned up the story of an upstate New York man who needed to go to the hospital for an emergency procedure regarding an infected ear. He did not have medical insurance, so when the bill came back it was over $4,000. To their credit, the hospital sent financial assistance forms along with the bill. When all was said and done the man qualified for assistance to the extent that all he paid out-of-pocket was $55.
While it's true that medical expenses can be financially crushing, there are a number of ways to work it out if you're willing to look for them and put forth the effort. Remember that medical bankruptcy should be your last resort.