The average person’s beliefs about bankruptcy are not as grounded in reality as one might think. A surprising number of people assume that irresponsible financial management is the leading cause of personal bankruptcy. They hear new stories about people carrying high levels of credit card debt or financing luxury purchases and assume that those people are the ones who file for bankruptcy eventually.
While there are certainly some people who create their own financial hardships through poor choices, many bankruptcy filings occur due to circumstances outside of people’s control. Many people are only a job loss away from being at risk of bankruptcy. Job loss is one of the leading causes of bankruptcy, but the top-reported issue that forces people to file is not what most people imagine.
Medical debt can develop with little warning
Most people believe that they have financial protection from medical emergencies because they have health insurance. What they fail to consider are the gaps in their insurance coverage. Many people who file bankruptcy because of medical debt have health insurance.
Most health insurance policies have certain patient responsibility costs. The individuals using their coverage must first meet a deductible by paying for some of their care with their own money. They may also have responsibility for co-pays at every appointment. In some cases, policyholders may also have to pay co-insurance, which involves covering a specific percentage of treatment expenses.
Then there is the risk of getting hurt while vacationing or traveling for work. Medical care received from an out-of-network provider may not be eligible for coverage or may pass a significant amount of someone’s care costs back to them because the care provider does not have a contract negotiated with the patient’s insurance company. Even someone with excellent insurance could end up with tens of thousands of dollars in medical debt after a car crash or cardiac event in another state.
Other conditions, like cancer, can lead to medical debt because the treatment that someone requires does not qualify for insurance coverage. The cost of medical care can lead to seemingly insurmountable personal debt within a matter of a few days. Many modern healthcare providers have very aggressive practices for debt collection and even sue patients who fall behind on payments or don’t have adequate insurance.
A personal bankruptcy filing is one of the only ways to eliminate medical debt and prevent medical creditors from placing a lien against someone’s home or otherwise causing lasting financial challenges. The stress of debt collection and financial hardship can worsen someone’s health.
Those who have just recovered from an injury or illness shouldn’t have to compromise their quality of life because of financial challenges. Filing for personal bankruptcy can lead to the discharge of medical debt that that might otherwise cause lasting challenges.
