Medical Bankruptcies - The Growing Reality

Catastrophic illnesses are claimed to have triggered approximately half of all personal bankruptcies in the United States. According to recent findings from a Harvard University study, most people who go bankrupt because of medical problems also have health insurance. Researchers found that many private insurance plans that offer limited catastrophic coverage were inadequate and offer little financial security for less severe illnesses.

Questionnaires were distributed to 1,771 bankruptcy filers in 2001 in California, Illinois, Pennsylvania, Tennessee and Texas. According the study, a total of 1.46 million personal bankruptcies were filed in the United States during 2001.

Nearly 1,000 individuals questioned gave detailed interviews about their financial and medical circumstances. Sickness and rising medical bills were cited as the cause, in part, for 46.2 percent of the personal bankruptcies. The numbers grew to 54.5 percent when an additional three other factors were included as triggers for medical-related bankruptcies: birth, death and gambling addiction. The study assessed that medical bankruptcies currently affect approximately 2 million Americans annually, including 700,000 children.

The study also cited that a majority of individuals looking for court protection from creditors had health insurance, with more than three-quarters reporting they had coverage at the beginning of the health catastrophe that triggered their bankruptcy. The study also found that 38 percent of the participants had temporarily lost coverage by the time bankruptcy was filed, with catastrophic sickness or injury frequently leading to both job and insurance loss.

Unfortunately, it’s become apparent that, for many Americans, serious illness often leads to job loss, which also means loss of health insurance. High-priced coverage through COBRA, while well intentioned, is meaningless if people can't afford to pay for it. Bankrupt families also lose more than just assets. One out of five families goes without food. A third had their utilities shut off, and nearly two-thirds skipped needed doctor or dentist visits.

The study’s findings also indicated medical-related bankruptcies often hit middle-class families hard; with 56 percent of the filers being college graduates who owned a home. The study did not, however, examine how many bankruptcy filers were from dual-income families, where both partners had medical insurance.

The Harvard findings echo previous studies which have generally reported that a majority of bankruptcy filers cite medical problems as a primary cause of bankruptcy, as well as other factors, including easy credit, job loss and financial mismanagement.

Many health insurance experts suggest that the Harvard study did not adequately explore the role disability income protection plans and personal savings can play in helping individuals with medical problems avoid bankruptcy.

Advantages & Disadvantages Of Bankruptcy

List Of Bankruptcy Advantages

1. It temporarily relieves stress.

List Of Bankruptcy Disadvantages

1. Makes you look irresponsible - professionally and personally.
2. Makes you seem desperate to your friends and family.
3. Can destroy your self-confidence.
4. Can potentially harm your marriage.
5. Can put undue strain and stress on your children.
6. Can prohibit you from purchasing anything on credit for years (i.e. a house).
7. Can destroy your confidence in your spouse.
8. Can cause long term anxiety (especially when you realize you cannot afford anything)
9. Forces you to change your bad habit of spending immediately (this is tough).
10. Will still cost you money (lawyer fees, you may not be able to bankrupt certain things, etc.)
That makes 11, and you can clearly see that the cons of bankruptcy far outweigh the pros in my opinion, and the single pro on this list is counter-acted by number seven on the con list. Basically, these are just some examples of how I see the pros and cons of this terrible instrument of bankruptcy of which many families are taking advantage in a bad way. This is bad because now that so many people have filed bankruptcy, there are many more hoops to jump through to actually be approved for bankruptcy, and for those very few who actually need to file, it is quickly becoming extremely difficult.

Always remember to make bankruptcy your last priority. From the very close people in my life that I have spoke with which have filed bankruptcy, they all say that wish that they never would have went through with it. They have now seen how they could have done so many other things, but they were young or they were following the advice of people that did not know what they were talking about.

Bankruptcy can have far-reaching consequences. So try and avoid bankruptcy as far as possible.

When Bankruptcy's Your Only Option

Bankruptcy is available when all other debt payment measures have failed and the unpaid debt is simply beyond the means of the consumer to repay. Even beyond the inevitable consequences to borrowers' credit reports and FICO scores (and, ever after, having to admit to bankruptcy for potential landlords, employers, or, in all truth, mates), recent legislation has made the decision to file increasingly punitive. Those seeking Chapter 7 protection must face the loss of household necessities/family heirlooms and themselves pay to attend debt-management classes before discharge.

Moreover, fewer and fewer borrowers even qualify for Chapter 7 as the arbitrarily-determined court 'means test' compares each applicants' income and living expenses to a governmentally-compiled list. And, should any part of the bankruptcy attempt be found fraudulent (forgotten income or accounts not touched for a decade), the filers may be liable for legal proceedings. In most circumstances, the modern borrower would be better served by avoiding bankruptcy and investigating alternatives such as debt settlements.

Nevertheless, there still exist consumers with sufficient financial hardships - sudden medical emergencies, long-term unemployment, familial trauma - who would best fit the bankruptcy model (or, to be frank, would not qualify for other alternatives). The following seeks to specify which reasons would preclude debtors from seeking other forms of relief. This is not an indictment of those that cannot choose debt settlement, there's any number of explanations for insolvency, but merely a clarification of current practicalities as regards debt relief.

First of all, each borrower should take a close look at his or her income. As a good rule of thumb, for debt settlement or similar options, borrowers should have the capacity to devote a minimum of two percent of their entire debt balance toward monthly payback - for instance, ear-marking $400 a month of income for every $20,000 owed. This is, again, just a ball-park example, every borrower's circumstances are different, but almost every debt settlement program requires commitments of at least one and half percent (and consumer credit counseling requirements tend to be quite a bit higher). If there's any question of inability to regularly meet such an amount, bankruptcy's likely the only option.

Similarly, income fluctuation can render even the most sincerely-minded individual helpless as regards creditors. The success of settlement programs depends upon strictly-mandated repayments. Even one slip-up can ruin the entire system and leave the borrower liable for penalties or a complete dissolution of the settlement agreement. For those self-employed or dependent upon seasonal boosts without savings to balance the occasional bad month, settlement programs can do more harm than good regardless of the debtors' sincere wishes.
In a different way, much depends upon prior relationships with creditors. If the borrower has taken out significant cash advances or purchased luxury items without any indications that they intend to repay, the creditor may quite reasonably assume fraudulent behavior.

Debt settlement's are made that much more difficult by debtors who initiate large transactions just before their designated professionals attempt negotiations. This sort of financial activity will still make declaring bankruptcy much more difficult but, regardless of surrounding circumstance, should make attempts toward debt settlement impossible.

Of course, recently acquired debts that the borrower has never attempted to repay and a fluctuating income (or, simply, diminished income) are immediately understandable reasons why debtors would not qualify for settlement programs, whatever the specific circumstance, but it's a bit harder to explain the next point: secured loans. Since the debt settlement specialist has to maintain some leverage within his dealings, debt tied to property easily repossessed or foreclosed upon doesn't allow for the proper vantage point for negotiations. Unfortunately, since state-to-state- exemptions often protect vehicles and homes from governmental restitution during bankruptcy, it's best for every borrower with significant equity in either to research their specific state's laws before first seeking the settlement alternative.

Finally, this last point's not actually one of legal practicalities but rather an ethical one. The purpose of debt settlement, after all, should be to protect the borrower from the credit-ravaging consequences of bankruptcy. Either Chapter 7 or Chapter 13 protection effectively disables the debtor from attempting similar mistakes for up to a decade. However, if there's a pattern of behavior clear to the settlement professional, they'll often try to dissuade the borrower from what seems to be merely a stop-gap in a longer series of unwise decisions. For all the horrific effects, bankruptcy does remove the filer from the credit pool, and, for some borrowers, that may be the wisest move.

As we've said, every debtor's situation's utterly distinct. It's best to consult with professionals of every stripe - as well as family and friends - before undertaking any serious move. Bankruptcy's not often the best alternative for careful borrowers. The repercussions upon credit reports and FICO scores can disrupt lives for years to come, and, from loss of possessions to forcible submission to court-mandated budget, the effects of the 'cure' may seem worse than the disease. Still, considering the restraints put upon debt settlement negotiators and other credit professionals, some debtors might not have a better alternative.

Is It Time to File For Bankruptcy Or Are There Other Options?

You might want to file for bankruptcy when your credit starts to cave in around you. When it becomes so bad that you cannot seem to get your head above water. If you are considering this as a viable option, you are not alone. Many people consider filing for bankruptcy every year for the same reasons.

However, is it really the best choice that you have? Not long ago, it was relatively easy to file for bankruptcy and it offered you a clean slate, which is what it was designed to do in the first place. Sure, you had to deal with an unsightly mark on your credit report for a number of years, but it offered you the chance to start all over when it came to your credit.

But recent changes in bankruptcy law make it even harder to understand and determine if this is the right choice for you. You see, Chapter 7 filings were the most popular because it essentially took everything away and you really did not have to pay anything back in most cases, whereas with Chapter 13, you had to pay back at least part of your debt. With the new laws, the income level has decreased for filing Chapter 7, which means your income will play a crucial part in what type of bankruptcy you can file.

You then have to take what is known as the means test, which gives the court the ability to determine what you are paying, what you are making, and just how much you can afford to pay back. At the same time, credit counseling is now required for any person that wants to file for bankruptcy, regardless of what Chapter they file under. This has been contested since studies have shown that the majority of people who file for bankruptcy do not do so because of financial mismanagement, but rather due to circumstances out of their control, which many argue would benefit very little from a credit counseling session, but this requirement remains as part of the law.

Therefore, knowing these new changes, of which only a few are listed here, it is absolutely critical that you contact an attorney before you make your decision. Before these law changes, you could file for bankruptcy on your own behalf if you wanted to, without much trouble. Now, you could still file, but you may find barriers and blockage that an attorney can help you figure out. Further, if you file incorrectly or miss filing a required form, it could cost you to lose even more than you need to, and you may need to go all the way back to square one.

So, how do you decide if bankruptcy is for you? Well, you need to look at your debt, your income, and your expenses as a whole. In order to make sure that everything is taken into an account and you have a real outlook as to what you may be facing with bankruptcy, you should take advantage of a free bankruptcy evaluation. This should be done before you file for bankruptcy and allows you to have a real understanding of just what decision you want to make, as well as what other options and alternatives to bankruptcy you may have based on your particular circumstances.