It is estimated that over 1.5 million Americans will file for bankruptcy protection this year. You might think that the number one cause of bankruptcy is overspending on an extravagant lifestyle, but this is actually not the case. A new study by the American Journal of Medicine has found that some 62% of bankruptcy filings are actually triggered by excessive medical expenses. In the six year period between 2001 and 2007, medical bankruptcies were up by almost 50%. It is estimated that one in five families are struggling with medical expenses.
Surprisingly, the majority of individuals who file a medical bankruptcy are home owners who are well educated. Almost 80% have medical insurance either privately or through their jobs, yet they still owe an average of almost $18,000. While those who did not have insurance owed an average of almost $27,000, there are a surprising number of bankruptcy filings by those who owe less than $5,000. Almost all people who file for a bankruptcy due to medical bills owe more than 10% of their income in medical bills.
The two groups that are at the highest risk for a medical bankruptcy are those who are over 55 and single mothers who do not receive any type of support from the fathers of their children. Also, those who experience a simultaneous interruption in income due to medical issues are also more likely to seek bankruptcy protection.
The debt collections practices of the medical collection industry are largely responsible for that high rate of bankruptcy filings due to medical bills. When you default on other unsecured debts, like credit card debt, your chances of being sued are actually fairly slim. This is especially true for smaller debts. Credit card companies understand that their chances of recovery are not all that great and thus they weigh the cost of litigation versus the probability of recovery.
With medical bills, the opposite is true. You are likely to be sued regardless of how small the balance you owe. It is not uncommon to be sued in small claims court for less than $1,000. Most middle class families are not prepared to deal with a lawsuit and certainly not multiple law suits at one time. Since the eventuality is that the creditors will win the lawsuit and seek a wage garnishment, it is easy to see why so many people panic and seek bankruptcy protection.
If you are in this situation, the best advice is to take a step back and examine your options. Don’t panic! Filing for bankruptcy is not always the answer. You may want to talk to an attorney, but keep in mind that the only way that they get paid is if you hire them. As such, be sure that you find a reputable attorney who will give you good advice rather than one who just sees dollar signs. There are no special medical bankruptcy rules, so any attorney who specializes in bankruptcy can help you.
After you examine your options, bankruptcy very well may be the best alternative. Make this decision only after you have carefully weighed other alternatives.
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