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New report: Medical debt continues to result in serious financial struggles

Even with the Affordable Care Act in place, providing many Americans with health insurance, medical debt continues to cause serious financial struggles throughout the country.

Medical treatments are expensive. Insurance is designed to help protect policy holders from the bulk of these costs. In an effort to increase the number of Americans that carry health insurance, The Affordable Care Act was passed. Although this law has reduced the number of uninsured Americans by an estimated 15 million since 2013, according to a recent report by The New York Times, struggles surrounding medical debt continue to be a problem. An estimated 20 percent of people under the age 65 continue to struggle to pay medical bills, regardless of having health insurance. An additional 53 percent of those without insurance are also struggling.

Whether struggling to make these payments with or without the assistance of insurance, one thing is clear: medical debt continues to plague Americans throughout the country. These struggles can lead to major lifestyle changes. From moving in with family members and taking extra jobs or hours at work to cashing out retirement accounts to make payments and skipping future medical appointments to avoid additional expenses, these struggles are leading to serious financial strife. In some cases, it may be wise for those facing these struggles to consider filing for relief through bankruptcy.

Bankruptcy and medical debt

Medical debts are generally considered unsecured debts and usually dischargeable in bankruptcy. Unsecured debt is defined in Black’s Law Dictionary as:

A debt borrowed with no collateral. The repayment comes from the [borrowers] pocket.

This is in contrast to secured debt. Secured debts are purchased with collateral. An example would be a loan to purchase a car or a home. For these purchases, the car or home may serve as collateral. The classification of medical debt as unsecured debt means that by filing a petition in bankruptcy under Chapter 7, a debtor likely will be relieved from personal liability on their medical debts. As a result, the creditors would no longer be allowed to take further action against the petitioner.

Chapter 7 bankruptcy begins with an applicant filing a petition for relief with the bankruptcy court. A trustee is then assigned to the case. The trustee reviews the tax returns and other paperwork of the applicant and in rare cases must liquidate, or sell, any assets that the Debtor and his or her counsel cannot exempt from the bankruptcy estate. Most cases are "no asset" cases, meaning the trustee takes nothing from the Debtor and there is no distribution to unsecured creditors.

For some Debtors Chapter 13 offers important advantages, or may be the only available option based on an analysis of the Debtor’s income and expenses. Even in Chapter 13 the Debtor may be able to discharge some or all of his or her unsecured debt including medical bills.

Importance of legal counsel

Those who are struggling with medical or other forms of debt may be eligible to receive relief through a bankruptcy petition. It is wise for those who are considering bankruptcy to seek the counsel of an experienced bankruptcy attorney. This legal professional will review your unique circumstances and help you decide which option will best lead to your future financial security.

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