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Medical debts underlie almost two-thirds of bankruptcy filings

When your insurance fails to cover all your costs during an unexpected illness, you can quickly drown in debt. The cost of planned healthcare, such as pre-natal care and delivery of a baby can also be hard to gauge accurately.

Thus, it does not come as a surprise that 62 percent of bankruptcies involved medical debt, according to a review of bankruptcy records by Harvard researchers. Their publication noted that most of those who owed medical debt worked in middle-class jobs, owned homes and were college educated. In addition, most of the individuals had health insurance coverage.

The treatment of medical debt is the same as other debt. Unpaid bills go to collections. The Commonwealth Fund reports that collections agencies pursued nearly 30 million Americans for unpaid medical debt in 2010. That number has likely risen as healthcare costs increase.

Chapter 7 bankruptcy and Chapter 13 bankruptcy stop creditor harassment and provide relief from outstanding medical bills.

Many do not fully understand that an unpaid bill from a clinic or hospital will lower their credit score. Even an unpaid hospital bill of $100 or less can affect your credit rating. After settling a bill that went to medical collections, it may take additional effort to remove it from your credit report. Pending legislation would address the issue and force credit reporting agencies to remove paid debts within 45 days. Unfortunately, the bill stalled in committee and despite wide support has not advanced in previous legislative sessions.

What can you do? Monitor all medical bills following medical treatment. Request an itemized statement and correct any errors. Do not use a credit card designed to cover healthcare costs, because these often come with higher interest rates and fees. When a bill goes to collections, ask to include an explanation in your credit file.

These suggestions might not reduce the debt to a point that you can repay. Depending on your circumstances, bankruptcy may offer a fresh start. A lawyer can explain the differences between chapters and discuss what might be right for you.

Source: LA Times, "How to escape the medical care debt trap?," Steve Trumble, July 22, 2014.

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