There are many reasons which cause individuals to file for personal bankruptcy as a way out of debt the major cause is medical bill but the reality is that the main cause of personal bankruptcy in America is in fact due to medical expenses. What is even more alarming is that 75% of those who do end up filing for bankruptcy due to medical debt actually have health insurance.
Illness can have a devastating impact on finances. Even with insurance there are deductibles to cover, co-payments, and exclusions to consider. Those who consider health insurance part of their benefits package often find that if an illness prevents them from working, the insurance coverage is withdrawn, in many cases immediately.
A Harvard University study into medical bankruptcy revealed that the average person who files for bankruptcy is a homeowner with a college education and a responsible job. Costly medical treatments can lead to unmanageable debt which savings cannot cover. It could be the primary insured who becomes ill or a family member, but where the primary insured is the one who becomes ill it often leads to unemployment.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1968, allows employees who lose their jobs due to illness the right to continue with the health insurance which their employer provided. However they are required to buy the insurance cover through their employer and must bear the full costs. This can be prohibitively expensive without an income, leaving the employee with no health cover for their own condition, nor cover for their dependents.
As unpaid bills escalate due to illness families which were financially secure can quickly succumb to debt. Those who have high equity in their properties may be able to obtain a home equity loan to keep on top of debts, but those without equity often face foreclosure. Bankruptcy is a viable solution which will discharge all accrued debt excepting student loans. Many opt for chapter 13 bankruptcy and thus come to an arrangement to repay creditors over time. In turn this has a negative effect on credit scores which will remain on credit reports for ten years.
As many more employers are now increasing the deductibles on health insurance and raising the co-payments expected from employees, providing a safety net of savings becomes increasingly crucial. Without adequate resources set aside to cope with emergency illness the possibility of becoming a medical bankrupt is a sour prospect to contemplate.
Source: The American cancer society.org
Consumer affairs.org