Archive for October, 2008

While loss of employment remains the number one cause of bankruptcy right now, when people lose their jobs they almost always also lose their health insurance benefits that they used to get through their employer. This often creates medical debt and it is something that often leads families and individuals to bankruptcy.

Medical bankruptcy is due to rise as the economy continues to worsen and more people find themselves without work. Bankruptcy provides an exit for people who accumulate medical debt the same way it does for those who accumulate consumer debt and are unable to pay for it.

The changes implemented in the bankruptcy code in Oct of 2005 were supposed to discourage consumers from filing chapter 7 bankruptcy and for a while it was so. It was also supposed to discourage and eliminate bankruptcy fraud. So most consumer bankruptcy files ended up as chapter 13 cases which was clearly the intention of the law changes. However, the trend did not last long. Once the real estate market began to peak in 2006, more cases were starting to be filed again under chapter 7 bankruptcy. Three years after those changes occurred the economy has taken a serious downfall causing many businesses to downsize.

Although employees who are laid off are able to take advantage of COBRA benefits, which allows someone to continue paying their insurance premiums and stay with the same health insurance carrier for up to three months. At the end of three months if the unemployed person has not found work they’re simply dropped form the plan and can not continue their coverage unless they’re able to pay for the full premium themselves, which without steady income is highly unlikely.

Unlike consumer bankruptcy, which is often made up of credit card debt and not always out of need, medical bankruptcy comes out of necessity and it may also be paid for with credit cards if medicines and office copays are required.

The U.S. healthcare system provides for a lot of bureaucracy and inflated prices that are impossible to afford for the unemployed. Although the government extends benefits to the uninsured, it typically takes a while for someone to qualify for these benefits and when medical care is needed it needs to be paid for somehow or it can not be rendered.

More people will file bankruptcy due to medical bills in the next few years as the unemployment rate continues to sore. If the medical expenses were paid for using credit cards they can be completely discharged under chapter 7 bankruptcy and if the filer is still unemployed when filing their medical debt for discharge, it is unlikely that they will be met with any obstacles or be forced to restructure the debt under chapter 13 instead.