According to CNBC, two-thirds of individuals who file bankruptcy each year cite medical bills as a key contributing factor. That means more than half a million families turn to bankruptcy because of outstanding medical costs or time out of work. Unaffordable mortgage is the second-most-common reason Florida and U.S. families file for bankruptcy, followed by living beyond one’s means, providing help to friends or loved ones, student debt and divorce.
The high cost of medical care has historically triggered the majority of bankruptcies, many individuals hoped that would change with the implementation of the Affordable Care Act. Unfortunately, that was not the case. The percentage of medical-related bankruptcies went up after the law’s implementation, from 65.5% to 67.5%.
According to The Balance, the average health care cost per person was $10,345 in 2016. Experts expect it to rise to $14,944 by 2023. Bearing these figures in mind, it is easy to see how one gets into medical debt in the first place. However, is filing for a medical bankruptcy a good way to get out of that debt? The answer depends on one’s priorities.
First, it is important to note that there is no such thing as “medical bankruptcy.” Consumers can file for one of two types of bankruptcy when faced with medical debt: Chapter 7 or Chapter 13.
Chapter 7 bankruptcy allows consumers to discharge all debts save for income taxes, overdue child support and alimony and most student loans. While Chapter 7 serves as a great way to start over financially speaking, it may mean turning over one’s property that is not otherwise exempt from creditors’ claims under state law — including his or her home, vehicles and other assets — to the bankruptcy trustee, who will sell it all and use the gains to pay off creditors. For many, losing their homes is not worth discharging outstanding medical debt. Generally, in Florida, one’s homestead is protected from claims of creditors other than the mortgage and is not involuntarily lost in bankruptcy.
In a Chapter 13 bankruptcy, one would make payments to a trustee for three to five years. The amount of the monthly payment depends on the amount of debt in question and the debtor’s disposable income. At the end of the three to five years, the courts consider all debts settled, even if debt remains. Individuals will not lose their homes in Chapter 13, but they may have to live frugally during the bankruptcy term.
The Balance warns that whichever type of bankruptcy for which one files, he or she is at risk of losing his or her healthcare provider. Though the Emergency Medical Treatment and Active Labor Act of 1986 prevents hospitals from refusing to treat patients who cannot afford to pay, medical providers do have the right to drop patients who discharge medical debt through bankruptcy.