Major Medical Bills a Common Symptom of Bankruptcy Filings
If bankruptcy were an illness, one of its symptoms would be a sudden and serious health issue that results in unaffordable medical bills. According to one personal bankruptcy study performed by Harvard researchers, most Americans are just one medical issue away from filing bankruptcy, even if they have private insurance coverage. This can be a truly scary and overwhelming thought, but knowing the basics of the bankruptcy options that exist to help treat and cure people’s financial illnesses, particularly within Florida, can be comforting.
Although factors like unemployment, divorce, overspending and natural disasters can force Americans to file for bankruptcy, one study points to unaffordable medical bills as the main cause. Harvard researchers released study findings in 2009 that support the connection between medical expenses and bankruptcies. The study found that 62 percent of personal bankruptcies in 2007 were the result of serious medical issues and their related costs. Around 78 percent of these filers had medical insurance and more than half were covered by private insurers.
This study was conducted before the recession and last year’s healthcare reform bill, so some factors may have shifted in the last two years. However, researchers identified an unhealthy upward trend in people filing bankruptcy for medically related conditions over the past two decades. Average medical bills of bankruptcy filers ranged from $17,000 to $26,000 for both insured and uninsured patients. The poor economy that continues to plague the U.S. despite healthcare reform could continue to exacerbate these issues.
The two major bankruptcy filing options consist of either Chapter 13 or Chapter 7 debt protection actions. Courts reserve Chapter 7 actions for people with lesser means, so these bankruptcy filers are discharged of all debts, including medical bills, after the court liquidates certain assets. The proceeds from selling non-exempt property are then fairly distributed between all creditors to settle outstanding debts. People qualify for Chapter 7 help by passing the means test, which is a formula used to determine if a debtor has the means to repay creditors.
When people do not qualify for a Chapter 7 bankruptcy under the means test, they may be eligible to file a Chapter 13 action. The purpose of Chapter 13 bankruptcies is to discontinue collection efforts like foreclosure, repossession, wage garnishments, lawsuits and creditor harassment. These filers are typically people who are over their heads in debt, whether medical or otherwise, but who make enough to pay back their creditors after lawyers negotiate, and they agree to, a repayment plan. Payments are made to a court-appointed trustee and plans typically span from three to five years.
Bankruptcy exemptions dictate what personal property a bankruptcy filer can keep and how much of the different types, whether possessions or money, are allowable. Exempt assets are not included as part of the bankruptcy estate. In addition, these are legally untouchable by creditors and the bankruptcy trustee. Although federal statutes and case law govern bankruptcy laws and rules, state property laws typically dictate bankruptcy exemptions. Federal exemptions, such as military benefits and other government employee pensions, exist, but certain states may not allow these to apply to a bankruptcy case.
Florida law provides various exemptions to state residents filing bankruptcy, including homestead and personal property exemptions. The homestead exemption protects a bankruptcy filer from losing their primary residence, as well as the attached residential land. Exemptions for personal property secure current cash holdings up to $1000 each for filers and their spouses, as well as certain savings accounts for education, medical needs or natural disasters. Some wages and social security income are also exempt from bankruptcy actions.
Other benefits to filing bankruptcy include protection from collection efforts, letting go of the stress, worry and guilt that comes from the inability to pay bills and the ability to keep many of your personal property items and assets away from creditors. These benefits can help a bankruptcy filer to let go of the medical bills and issues that originally created larger financial problems and allow them to get healthy from the inside out again. If you are considering filing for bankruptcy in Florida, you should consult an experienced Florida bankruptcy attorney about the insolvency process. A bankruptcy lawyer can help you review both your medical and non-medical bills, protect your exempt assets and prepare you for a healthy financial fresh start.