Unlike other financial issues such as credit card debt, medical debt is not caused by unwise monetary choices, but rather it is often caused by unforeseen circumstances. The issue is cyclical: You are in debt because of unforeseen medical circumstances and the financial stress that comes with these additional medical expenses causes you to get sicker and deeper into medical debt.
According to a new report by The Common Wealth Fund, “rising premium and deductible contributions have outstripped wage growth over the past decade. More and more middle-class Americans are paying a greater percentage of their earnings towards health care.”[1] In 2018, the average premiums for single-person plans ranged from a low of $5,971 in Tennessee to a high of $8,432 in Alaska. In family plans, the lowest average premium was $17,337 in North Dakota and the highest was $22,294 in New Jersey.[2] Research has indicated that high deductibles can act as a financial barrier to care, discouraging people with modest incomes from getting needed services and leaving them effectively underinsured.[3]
The above, of course, doesn’t take into account the already existing medical debt that a person carries from year to year. Add a rise in insurance premiums, mix it with some past due medical debts, and what do you get? A Dose of Financial Disaster. However, not all hope is lost, because bankruptcy can be your way out.
Last month I met a very nice elderly couple that found themselves in this exact situation. Now, in my initial meeting with this couple (we’ll call them Jane and John Doe or the “Does”) they explained to be that they had done everything in their power to make sure that their finances were always in order: 1) they saved for retirement; 2) they didn’t live beyond their means; and 3) they only used credit cards when absolutely necessary. Of course, everything was fine for the next 50-60 years but as their health started declining, so did their finances. A few strokes later, coupled with some insurmountable medical bills, the Does found themselves barely scrapping by, living off the little they had left in retirement, and depended on credit cards to pay for their doctor visits and necessary living expenses. When the Does came to see me, they had been metaphorically beaten to the ground by creditors and had no one to turn to. It was clear to me that their rapid decline in their health was directly correlated to the stress associated with their medical debt. I am happy to report that the Does filed for Chapter 7 bankruptcy and were able to discharge (eliminate) over $300,000 in medical debt.
Ordinarily, if you file a bankruptcy pursuant to Chapter 7 or Chapter 13, you will be able to discharge most (if not all) of your medical debt. Depending the debtor's income or equity in assets, he or she could eliminate all of their medical debts through a Chapter 7 bankruptcy or enter a repayment plan to repay part (usually pennies on the dollar) of their medical debts in a Chapter 13 bankruptcy.
While it is a difficult decision to make, individuals struggling with medical debt should understand how bankruptcy could help them get a fresh financial start. Overcoming financial problems is not an easy process; however, becoming well-informed could help debtors fully address their medical financial hardships.
Now, one of the biggest concerns for people that are looking to discharge medical debt is whether they would be able to keep seeing their existing doctors. This was the Does’ biggest concern because they hadn’t changed doctors in decades. Trust me when I say this - having gone to the same doctors for the past few years, I wouldn’t want to change doctors either. Humans are creatures of habit and find comfort in consistency. Unfortunately, being afraid of having to change doctors does deter a lot of people from filing bankruptcy to discharge medical debt. However, I’m here to assure you that there is nothing to be afraid of.
Having seen this play out many times before, this is how it would normally shake out: Let’s say you owe Dr. Quack $2,000 in medical bills. You file for bankruptcy on December 1, 2019 (the “Petition Date”) and list Dr. Quack’s office as a creditor in your bankruptcy schedules. A few days later, Dr. Quack’s office receives a “Notice of Bankruptcy” – the same notice that all of your creditors would receive. At this point, Dr. Quack’s office or billing department would receive notification of the bankruptcy and take note of the Petition Date. Anything that you owed prior to the Petition Date would be charged off and any medical debt incurred after the Petition Date, you would continue to be charged for. Therefore, if you happen to have an appointment with Dr. Quack on December 20th, you should have no problem seen the doctor.
The purpose of this blog is to shed light on a huge problem that has rapidly grown into an epidemic: Healthcare in America has become so unaffordable that Americans can no longer pay off their medical debts. Nevertheless, I am here to bring hope to those individuals who have fallen victims to the ever-increasing cost of healthcare in America. If this sounds anything like you, the best thing for you and your peace of mind is to speak with an experienced NJ bankruptcy attorney to discuss your options for your particular situation. Give me a call today for a free consultation.
[1] https://abcnews.go.com/Health/middle-class-americans-crushed-rising-health-insurance-costs/story?id=67131097
[2] https://www.commonwealthfund.org/publications/2019/nov/trends-employer-health-care-coverage-2008-2018
[3] Id.