When someone files for bankruptcy, they effectively admit that they owe more money than they can repay and that they need help from the courts. They invoke legal protections that can stop collection activity. If a bankruptcy is successful, the person who files can discharge the remaining amount that they owe on qualifying unsecured debts.
All too often, people look to the debts themselves as the source of someone’s financial hardship. However, most individuals are able to maintain some degree of personal debt and still fulfill their financial obligations every month. Bankruptcy can be a result of poor financial management, but the top cause is actually something beyond the control of the average filer.
Health issues are the top reason people file for bankruptcy
According to a review of bankruptcy filings in the United States, roughly 61% of the people seeking a discharge of their debts ended up in that position because of medical costs. Unlike credit card debt that may only add up to a few thousand dollars, medical care can cost hundreds of thousands of dollars, even when people have insurance.
Car crashes caused by people without liability insurance and cancer are among the many health issues that can leave people financially struggling even after they physically recover from their injuries or illness. High levels of patient responsibility for care, like co-insurance, can leave some people with an ever-growing stack of medical bills that they cannot pay. Hospitals and other healthcare providers are often very aggressive about debt collection. They will sell the debt to for-profit businesses or even seek a lien against a patient’s home for the bills they have not yet paid in full.
Bankruptcy is a way for individuals to erase some of that medical debt and also for them to prevent collection activity, like a lawsuit seeking a lien that could affect their investment in their primary residence. Realizing that the top cause of bankruptcy is beyond people’s control may take some of the shame out of the personal decision to file for bankruptcy and empower people to eliminate the medical debt reducing their quality of life after suffering a serious medical situation.