Medical Debt Leading Cause of Bankruptcy

Medical DebtIt is no surprise that medical debt is a leading cause of bankruptcy these days.  Medical care is very expensive and many people either do not have health insurance or their insurance pays less than 100% of their costs.  I recently met with a client who was involved in a car accident.  The medical bills for injuries received in this accident exceed $500,000.  The other driver was at fault but they had the minimum insurance coverage required by the state and no assets of their own.  This person, who had always had a good job, paid his bills, and was debt free before the accident, is now in bankruptcy, and due to no fault of his own.

Luckily bankruptcy is an option for him.  He hates that he needed to file bankruptcy but is grateful that it is an option.  Consider that someone who has incurred medical debt may be injured or sick, and unable to work.  Without adequate insurance, most of us would be instantly insolvent after being involved in a car accident or battling an illness that required extensive medical treatment.  If not for bankruptcy they could spend the rest of their life with debt they cannot afford to pay.

This problem is only going to get worse.  People are living longer and the average age of our population is getting higher.  The elderly require more medical care than the young and don’t have the same earning potential, due to insufficient retirement investments and inability to work.  In my experience medical providers are not as aggressive in collecting debt as other types of debt collectors.  But at some point they usually charge off their losses and sell the debt to a collection agency who is much more aggressive in collecting the debt.

Fortunately, medical debt is unsecured.  This means that in a bankruptcy case the creditor’s claim is fully discharged with no payment to the creditor, unless the debtor has some disposable income or nonexempt property.  Medical care is so expensive that some people that have no other debt, and would never have even considering filing bankruptcy, are forced to file after getting sick or injured.