Medical debt and bankruptcy: When to file for relief

Even with the passage of the Affordable Care Act, American's struggle with financial debt. For some, bankruptcy can offer a fresh financial start.

The passage of the Affordable Care Act has resulted in an increase in the number of Americans that have medical insurance. Unfortunately, this does not always translate to less debt. Over the last few decades insurance providers have increased the amount of medical bills that their clients are responsible. As a result, even with coverage patients may be expected to pay hundreds of thousands of dollars for their medical care.

Digging into the issue: How big is the problem?

The issue was recently covered in a report by The New York Times. The news source, along with the Kaiser Family Foundation, conducted a poll examining the number of Americans that struggle with medical debt. The poll was unique because instead of just reviewing how insurance impacts health care, it focused on how the bills impacted patient's daily lives. From their findings, 25 percent of those under the age of 65 with health insurance struggle to pay medical bills. Of those who reported having problems making these payments, 63 percent used all or most of their savings to try to pay off their medical debt.

Managing debt: What are my options?

Although using other financial reserves to pay off medical debt may be admirable, it is not always the best for the patient's future financial stability. In some cases, it may be wise to file for relief through a bankruptcy petition. Two top factors to consider when determining if bankruptcy is right for you are:

  • Debt. The type of debt matters. If your debt is based on medical bills or credit card debt, bankruptcy may be a good option. These forms of debt are generally dischargeable, meaning they can be forgiven through a successful bankruptcy petition. Other debts, like tax or child support obligations, are not.
  • Retirement. Bankruptcy may be a good option if you are considering using retirement funds to pay off medical debt. In most cases, these savings are protected during bankruptcy. As a result, you could save your retirement accounts while still discharging your debt.

Determining the exact impact of bankruptcy will vary for each situation. As a result, it is wise to seek the counsel of an experienced consumer debt attorney. This legal professional will review the details of your unique situation and offer options that can help set you up for future financial success. This will include a discussion of the various chapter of bankruptcy available and how their use will impact your assets and debts.