What Will It Take To Eradicate The Need For Medical Bankruptcy?-Image by Getty Images via @daylife

Americans are in debt, and it’s not just credit card debt which is raising the ire of both citizen and politician. Medical debt continues to be a serious issue which offers no “traditional” answers; but instead requires radical thinking about how we approach healthcare in this country.

As it stands, a full 62 percent of all bankruptcy filings in this country are caused by medical bills.  That’s well over half and that’s not counting all of the debtors who don’t bother to file bankruptcy due to fear or ignorance about their rights. Compare that to Canada, which has a miniscule amount of medical bankruptcy filings but has a universal healthcare system which is paid for with taxes, not individually. In this country, many debtors who end up drowning in medical debt have health insurance. They either pay for it through their work or individually. However, with the exception of the most premium health insurance programs, the amount of healthcare actually covered is not enough to prevent a major illness from bankrupting the average American. The truth of the matter is that the average American cannot afford health coverage in this country; not the premiums and definitely not the out of pocket expenses which can run from a few hundred dollars a year to tens of thousands of dollars worth or medical debt after a major illness. The good news is that we have a bankruptcy system which is flexible enough to discharge medical debt. But the bad news is that for those who have ongoing healthcare needs which they can’t afford to treat; bankruptcy is only the beginning of their journey. For those who have exited bankruptcy, right now the best options are group plans which offer adequate coverage which will minimize the chances of accumulated more medical debt.

(source: http://www.cardiovascularbusiness.com/index.php?option=com_articles&article=26659&publication=29&view=portals)

The True Face Of Bankruptcy-Image by Getty Images via @daylife

As the headlines for bankruptcy focus on the sensationalized stories of individuals and companies who choose to engage in fraud and deception, it’s important for us to remind ourselves about the true face of bankruptcy. The true face of bankruptcy is NOT the former millionaire turned fraudster or slickster, it is the ordinary people in our society who have run into a bit of bad luck and misfortune. The true face of bankruptcy is:

• The single mother who has lost her job due to layoffs and now needs bankruptcy so that she can save her home from foreclosure.
• The elderly couple who is inundated with medical debt and now needs bankruptcy so that they can avoid depleting their savings and retirement trying to pay medical bills they can’t afford.
• The recent college graduate who has been unable to find work for the past two years and now they need bankruptcy relief so they can discharge high interest credit cards and other unsecured debt they accumulated during college.
• The businessman whose business took a nosedive after the recession caused customers to cut back and now he needs to restructure his debts in Chapter 11 bankruptcy so that his business can survive.

The true face of bankruptcy are all the ordinary men and women who have come to the end of their financial rope and now need the help of bankruptcy so they can start again. Most people who file bankruptcy use it as their last option and that’s after they have exhausted all other means of solving their debt troubles.  They have no interest in trying to “game” the system, they simply want a chance to start again, and bankruptcy gives them that chance.

1. Lack of budgeting skills often cause or exacerbate financial conditions which lead to bankruptcy.  You may be very skilled in your craft or trade; but your skills at budgeting your income are lacking. If this is the case, debtors exiting bankruptcy may want to work with a financial counselor to help them setup and follow a simple family budget.  There are also many very good books on personal finance and budgeting which can help post-bankruptcy debtors.
2. Lack of discipline with credit cards can lead to bankruptcy.  If you find yourself unable to resist the lure of credit cards and find that you often max out your Visa or MasterCard, then you may want to limit your credit use after bankruptcy.  Consider only using one or two credit cards after bankruptcy and having your spouse, family member or friend hold you accountable for how you use that credit card after bankruptcy.  You may also want to avoid charging anything on the credit card and only use cash for purchases. Use your credit card to order plan tickets, reserve a credit card or to do other things for which a credit card is required.
3. Excessive medical debt is one of the leading causes of bankruptcy.  If you have found yourself with mounting medical debt or if you have an ongoing medical condition which is costly, choosing the right type of health insurance could help you avoid a second bankruptcy.  Also, you should research to see if you qualify for any of the government sponsored medical programs which help people with low-income and chronic medical conditions.
4. If foreclosure and other housing issues prompted your bankruptcy, you may want to reexamine how you’re approaching housing and mortgages.  After exiting bankruptcy make sure that you do not buy or rent more house than you can afford. Work with a non-profit housing counselor to make sure that the mortgage you sign after bankruptcy is not toxic.

In addition to developing a basic savings plan to pay for retirement, a second major component to your retirement planning needs to be reduction of debt obligations so that you can eventually afford to retire.  If you have high debt balances from credit card debts or medical expenses, talk to a bankruptcy attorney before making drastic financial changes in your debt strategy.  Many people are tempted to pay off their credit card debts by tapping into their retirement funds.  Some people are even tempted to do the quit and get re-hired trick…. This is where they resign from their job, use the qualifying event to pull out all of their retirement savings from a 401K, and then get re-hired by the same employer, but with a loss of seniority and possibly benefits.  Using your retirement proceeds to pay debts is an unnecessary risk of your current benefits and future retirement.  Depending on where you are at in your retirement planning, you may not be able to recoup the savings that you accumulated through your retirement plan and the accompanying, accrued interest. Bankruptcy is a better option when you need to protect your future retirement and control current debt obligations.

Bankruptcy also helps keep aggressive creditors in check.  Do not be pressured by a collector that is harassing you and threatening to “garnish” your retirement funds.  Funds in 401K and similar retirement accounts are protected in bankruptcy.  This means that creditors cannot access these funds, unless you authorize them to do so.    Talk to a bankruptcy attorney first.  They can help you develop a bankruptcy plan where you can resolve your debt issues without sacrificing your retirement funds.

One consumer, Karen Rhode, didn’t find out that she had unpaid medical bills until she went to purchase a house and her credit report showed two unpaid accounts.  The two accounts totaled less than $100.00.  She lamented that if she had know about the accounts, she would have paid them.  As a result her credit rating was several points lower, and her interest rate higher.

Many people assume that their insurance company will take care of all the details.  One of the easiest ways to get buried in medical debt is to assume that your insurance will cover everything and they will let you know when they don’t.  The DMA article painfully highlights the issues associated with miscommunication in medical billing.  One example involves your primary care physician.  Many people again assume that if your doctor is in your network of providers that all the coverage associated with his services will also be covered.  Unfortunately, insurance coverage isn’t that simple.  If you are with a plan that is based on using a provider that is in the “network,” everyone that provides a service to you must also be in the network for you to avoid being stuck with the unpaid balance.

The best defense is a good offense—staying on top of medical billing is the best way to avoid collection efforts by a medical provider.  Sometimes, things just aren’t that simple though.  The medical bill is more than you planned and you can’t financially manage your way past it.  Your credit report is hit and now you’re paying a little bit more for everything because of a damage rating.  This is the point that you should start looking for other options.  One of your best defensive options is to talk to a bankruptcy attorney.  Just like the medical bill, bankruptcy will show up on your credit report, however, it will be a step that will eventually resolve your debts and get you back on track to rebuild your credit rating, instead of painfully dragging out your financial rehab for months.  When most people think of resolving debt through bankruptcy, they tend to focus on credit card debt because that is what is talked about the most.  The good news is that individual bankruptcy is a good remedy for any type of consumer debt, and medical debt is considered a consumer debt.  Because it is a consumer debt, you also get the same protections as any other debt, including automatic stay.  This means that an aggressive bill collector will have to immediately stop trying to collect on your account while the bankruptcy is pending.  The bottom line is that you would seek a specialist for a difficult medical procedure.  Your financial health deserves the same priority.  Contact a qualified bankruptcy attorney in your area to learn more about bankruptcy protection today.