Imagine walking into the grocery store and filling a cart with products, then finding out the prices of those products after you’d already checked out — without the ability to put items back if they sent you over budget.
Many people feel this is representative of going to the emergency room or having a medical procedure done in America. It’s pretty commonplace to have to seek care without knowing exactly what it will cost ahead of time, especially for unplanned visits to urgent care or the ER. We only find out the price tag when a bill arrives, sometimes containing surprises as to what insurance will and will not cover.
This leads to situations like a 70-year-old resident of Washington surviving COVID-19 after more than a month in the hospital, then receiving a $1.1 million bill. The bill contains nearly 3,000 itemized expenses across 181 pages — covering everything from ventilator charges to the protective equipment worn by medical staffers treating him. Lucky for this man, his insurance policy will cover most of the charges, probably leaving him with about $6,000 in out-of-pocket expenses that’ll likely be covered by government funds earmarked for COVID-19 costs.
This is just one example of how quickly medical bills can become prohibitively costly — plus, many Americans have insurance policies likely to leave them with some out-of-pocket costs in the event of a hospital stay.
So, it’s probably not a surprise to learn many Americans end up filing for bankruptcy due, at least in part, to medical bills. Keep reading to learn more about medical bankruptcy.
Medical Bankruptcy in America
Medical bankruptcy is generally regarded as a bankruptcy filed to discharge expenses related to medical procedures — whether that includes the bills themselves, the loss of income following an illness/accident or a combination of the two. And, while it’s tempting to think this only affects people without adequate insurance, the truth is many Americans with insurance are vulnerable thanks to high deductibles.
How common is medical bankruptcy in America? According to a study published in the American Journal of Public Health and cited by Nasdaq, 66.5 percent of people who filed for bankruptcy between 2013 and 2016 cited medical issues — costly bills or unpaid time off — as a contributing factor. About 58.5 of those aforementioned medical bankruptcies stemmed from medical expenses, while 44.3 percent resulted from illness-related income loss.
While declaring bankruptcy can help borrowers discharge some or all of their medical debts, there are consequences to this course of action. Namely, bankruptcy remains on a credit report for up to 10 years if it’s a Chapter 7 “liquidation,” or up to seven years if it’s a Chapter 13 “repayment plan.” Filers may also have to give up some or all of their non-exempt assets in an attempt to repay as much of what they owe as possible. And, going through bankruptcy proceedings typically costs money for attorney fees and court filing costs.
Avoiding Medical Bankruptcy When Possible
Sometimes medical debt is so insurmountable people have little choice but to pursue bankruptcy. But it’s always worth exploring other options first, such as:
- -Credit counseling: This is usually a requirement of bankruptcy anyway, so you’d might as well proactively meet with a credit counselor who can take a look at your specific situation and potentially get you on a debt management plan (DMP).
- -Debt settlement: One possible alternative is negotiating with the hospital in an attempt to reach a less-costly compromise, either on your own or through debt relief programs.
- -Credit consolidation: If your credit score is solid enough to qualify for a personal loan at a lower interest rate than your medical bills/credit card debt, you may be able to use said loan to pay them off — then repay the loan in more manageable installments over the course of a few years. Homeowners with equity built up may be able to refinance their mortgages and take out the difference in cash to address medical bills.
It’s also worth combing all medical bills for potential errors, asking providers about their hardship plans and even working to negotiate down expenses before going right to bankruptcy. However, it is an option if there’s otherwise no feasible way to address your medical expenses.