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The relationship between medical bills and personal bankruptcy

The U.S. Bankruptcy Court for the District of Columbia reports that in August of this year, there were 58 filings for bankruptcy. In total this year, there have been 457 total filings for Chapter 7, Chapter 11 and Chapter 13 bankruptcies. That number is down from the year-to-date total compared to last year.

According to research, the leading cause of many of these filings is tied to medical debt. NerdWallet conducted a study recently that determined that many families across the country are maxing out credit cards, depleting savings accounts and even refinancing mortgages due to unpaid medical bills.

The study’s findings include the following: 

  •        Approximately 1.7 million people lived in homes that were expected to file bankruptcy due to medical bills in 2013.
  •        One in five U.S. residents struggle annually to pay off medical bills.
  •        Medical expenses will prevent roughly 10 million people between ages 19 to 64 from having the ability to pay for food and housing.

NerdWallet noted that millions of Americans who have health insurance still face trouble with these expenses. The organization’s vice president stated in a CBS News report that high-deductible insurance policies – which typically have lower premiums – are often the culprit for the financial distress.

People who file for bankruptcy seeking relief from medical debt should be aware of how the different options work. A Chapter 7 bankruptcy should discharge the debt along with other unsecured debts. A Chapter 13 bankruptcy essentially reorganizes debt so the person filing can make more affordable payments. Therefore, the debt would not be eliminated, but it is possible that the debtor would owe significantly less.

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