Let me explain, a recent study by a Harvard professor showed that nonpayment of medical bills was one of the top reasons why many people file for bankruptcy. In the United States medical bills are among the top factors of bankruptcy filings.
Despite having health insurance many of these people typically managed to accumulate close to $20,000 in medical bills — that’s only a few thousand dollars less than individuals who file for bankruptcy due to other reasons. You would think that having health insurance would prevent this type of problem, but many people although they do carry health insurance are not adequately covered. One of the main reasons they may not be adequately covered is that they may not be able to afford the insurance premiums for top of the line health insurance to cover any tragedy.
The typical medical debt of $20,000 may not sound like a large debt, and it certainly doesn’t seem like enough to file for bankruptcy. The problem is that debt collection for medical bills is very aggressive. If you have a credit card debt and you decide not to pay, then your chances of being sued by the credit card company are quite small. More than likely this creditor will try to establish some sort of payment plan with you.
The medical debt collectors often prefer litigation instead of a payment plan. Very often they will file lawsuits that most other lenders won’t bother to do even if the amounts are very small. Since many people are unfamiliar with the small claims court process they tend to panic and opt to resort to filing for bankruptcy protection.
The truth is there really is no such thing as a medical bankruptcy. There are basically two types of personal bankruptcies, one is the chapter 7 and the other is chapter 13. The medical bankruptcy term actually refers to an individual’s inability to pay his medical bills, but there really is no legal remedy exclusively for medical debt.
You can file under bankruptcy protection, but all of your debt must be included. This applies to your car loans, credit cards, mortgage loans, and medical debt. Under Chapter 7 bankruptcy you may be able to eliminate your total debt, while a Chapter 13 bankruptcy helps an individual to pay back your debt in a 3 to 5 year period. However, a bankruptcy that is being filed due to medical reasons because of loss of income or excessive medical bills can be referred to unofficially as a medical bankruptcy.
The notion that there exists a legal remedy for medical bankruptcy may have developed because the courts tend to handle medical debt differently than other types of debt. The courts treat different debts with different methods. The court will separate a person’s debt into two categories: unsecured and secured debt. The secured debt is usually tied to physical assets, such as a home mortgage or car loan. (That is, if you don’t pay the bank or mortgage company, you can lose your house or automobile.) An unsecured does not have any assets and can usually be greatly reduced or even be eliminated through bankruptcy. A medical debt is classified as an unsecured debt, so many times it is completely eliminated.
While a medical bankruptcy may not be considered a legal term, it certainly helps to describe the reason a person falls into a debt crisis. Once a person is informed of the choices available under the pressure of mounting medical bills, then he or she can decide whether filing for bankruptcy is the best course of action.