5 million bankruptcies that will be filed this year, 62% of them will be the direct result of medical issues.
Even more surprising is the fact that of those filing for medical bankruptcy, over 80% actually had medical insurance.
Despite this, they managed to rack up medical debts that approach almost $18,000! This is just $9,000 less than the amounts owed by individuals who filed for bankruptcy due to medical reasons that lacked medical insurance.
While $18,000 seems 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 a credit card debt, the chances of you being sued are actually quite slim.
More likely is that the creditor will work with you to establish some sort of acceptable payment plan.
In contrast, medical debt collectors seem to prefer litigation.
They will often file lawsuits in small claims court on amounts so small that most other lenders would have not even bothered.
Since most people are not accustomed to dealing with lawsuits, it is no surprise that many people panic and resort to filing for bankruptcy protection.
What is a Medical Bankruptcy Technically speaking, there is no such thing as a "medical" bankruptcy.
The only kinds of personal bankruptcies are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
There is no distinction by the cause of a bankruptcy.
Generally speaking, however, a bankruptcy that is classified as medical is any bankruptcy that is filed due to medical reasons.
This can be caused by excessive medical bills, or a loss of income due to illness.
In some cases, it is even the result of an individual getting a second mortgage to cover their expenses.
If medical issues were the direct cause of the bankruptcy, it can be referred to as a medical bankruptcy.
The Medical Bankruptcy Fairness Act of 2008 An act was introduced to Congress in 2008 which if passed, would provide a legal distinction for medical bankruptcies.
This Act would exempt $250,000 of home equity for those filing bankruptcy due to medical reasons.
It would also eliminate the means test for people filing bankruptcy due to medical conditions.
This means that many individuals with medical debts that are now forced into Chapter 13 would be able to file for Chapter 7.
The act also offers some relief to caregivers of the seriously ill.