Understanding Medical Bankruptcy

Most people are surprised to discover that of the estimated $1.5 million bankruptcies that will be submitted this year, 62% of them will be the direct consequence of medical issues. Even more astonishing is the fact that of those filing for medical bankruptcy, over 80% truly had medical insurance. Regardless of this, they was able to stand up medical debts that approach nearly $18,000! This is only $9,000 significantly less than the amounts owed by people who filed for bankruptcy because of medical reasons that lacked medical insurance..

While $18,000 may seem like a small amount of debt to cause a bankruptcy, part of the problem is the aggressive nature of the medical debt collection industry.. When you default on the credit card debt, the likelihood of you being sued are actually quite slim. Much more likely is the fact that the creditor will continue to work with you to ascertain some type of acceptable payment plan.

On the other hand, medical loan companies seem to favor litigation. They will often file lawsuits in small claims court on quantities therefore small that many other lenders would have not bothered. It's no surprise that many people panic and resort to filing for bankruptcy protection, since most people are not used to coping with lawsuits.

What is a Medical Bankruptcy

Technically speaking, there's no such thing being a 'medical' bankruptcy. The only kinds of individual bankruptcies are Chapter 7 bankruptcy and Chapter 13 bankruptcy. There's no difference by the reason behind a bankruptcy.

Generally, however, a bankruptcy that's classified as medical is any bankruptcy that is filed because of medical reasons. This is often brought on by extreme medical bills, or a loss in revenue as a result of illness. Sometimes, it is even the results of someone getting a 2nd mortgage to cover their expenses. If medical issues were the direct reason for the bankruptcy, it could be called a medical bankruptcy.

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The Medical Bankruptcy Equity Act of 2008

An act was presented to Congress in 2008 which if approved, would provide a legal difference for bankruptcy chapter 7. That Act would exempt $250,000 of home equity for anyone filing bankruptcy as a result of medical reasons.. It would also remove the means test for individuals filing bankruptcy because of medical problems. What this means is that many individuals with medical obligations that are now forced in to Chapter 13 would be in a position to apply for Chapter 7. The work now offers some aid to caregivers of the seriously ill.