Jeffrey M. Rosenblum, P.C.
A Fresh Start

Millions file for bankruptcy because of medical debt

The Affordable Care Act, commonly known as Obamacare, will soon mean that millions more in New York and the rest of the nation will be covered by health insurance. Unfortunately, that does not always mean they will be protected from the burdens of huge medical bills.

Medical debt is still considered the top cause of personal bankruptcy in the nation, more than credit card bills or mortgages. According to one report, 10 million Americans who have insurance will not be able to pay off their medical bills this year. According to the same report, 1.7 million American families will file for bankruptcy this year because of health expenses.

One big problem for the insured is high-deductible insurance. Often purchased by young people or those who cannot afford better coverage, high-deductible plans make the insured pay up to a set amount of their bills before the insurance company pays the rest. If the insured does not get sick or injured, this may not seem like a problem, but, when they do, the insured have to pay the first $5,000 or $10,000 for any bill. This can be a disaster, especially for those with lower incomes.

One way some people get medical debt under control is through filing for Chapter 13 bankruptcy. Unlike some other forms of bankruptcy protection, Chapter 13 does not require selling off a large amount of assets to pay off creditors.

Chapter 13 is a reorganization of debt. Eligible filers go through credit counseling, pay a fee to the bankruptcy court and then work out a repayment plan that allows them to pay off a large part of their debts through manageable payments. At the end of the repayment plan, typically three or five years, the court may discharge some of the remaining debt.

It is sad to see so many Americans suffering financially, just because someone in their family got sick or injured. Bankruptcy protection offers a way to get out of this kind of debt trap. Long Island residents who are struggling with medical bills or other debts should investigate their options for reorganizing their debt.

Source: USA Today, "Biggest cause of personal bankruptcy: Medical bills," Dan Mangan, June 25, 2013.