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Unfortunate reality: health insurance won’t necessarily prevent medical bankruptcy, P.2

In our last post, we mentioned that medical bills are among the leading causes of bankruptcy, and that simply having health insurance doesn’t necessarily protect one from crushing medical debt. For those who do struggle with medical debt, bankruptcy can provide necessary relief. Obviously, debtors need to consider the consequences of filing for bankruptcy, but they should also realize that, at a certain point, bankruptcy is going to help improve their situation.

In terms of going forward with a bankruptcy filing, an important question to consider at the outset is: which type of bankruptcy is best when the primary type of debt is medical? Major medical debt is a challenge to pay back, but both Chapter 7 and Chapter 13 provide their own respective ways to address the situation.

As readers may know, Chapter 7 uses a liquidation approach, whereas Chapter 13 uses a reorganization approach. Determining which form of bankruptcy is best for addressing medical debt isn’t as dependent on the fact that one has medical debt as much as on factors like how much medical debt one has accumulated and continues to accumulate going forward, what one’s current income level is and one’s ability to earn money going forward, how much total debt one is carrying, and various other factors.

For debtors who have had a medical crisis, incurred debt, and currently have that crisis behind them, the picture is going to be different than for those who have received a major medical diagnosis and require ongoing, expensive treatment. The picture will similarly be different for debtors who have a reduced ability to earn money as a result of a medical condition than it will for debtors who are able to continue working but who simply can’t pay off their debt in their current situation.

In our next post we’ll continue looking at this issue. 

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