Chapter 7 Bankruptcy & Healthcare Costs

Filing bankruptcy, for many Americans, is perceived as an indication of financial failure and bad decision making. Unfortunately, statistics show the opposite is true. In fact, bankruptcy most often is the result of a family's financial demise attributed to sudden and unexpected health care costs. With the recent change in bankruptcy laws, many American families are turning to bankruptcy as a viable alternative to restoring credit worthiness and moving forward in gaining financial stability.

Chapter 7 bankruptcy is the most common type of bankruptcy proceeding filed. Allowing for liquidation of all assets, a trustee is appointed to collect, sell and distribute funds to the various creditors. Under Chapter 7 bankruptcy, creditors, including medical providers, are no longer permitted to collect monies directly from the debtor. Instead, medical providers are required to place the open and delinquent medical expense account on hold until the bankruptcy is discharged.

Under the new bankruptcy laws, debtors are now required to undergo credit counseling, debt management and complete budgeting courses before bankruptcy is approved. For many bankruptcy filers, unfortunately, these programs may not be suitable as the basis for the significant debt, most oftentimes, was not attributed to poor money management. Instead, the bankruptcy is the result of a growing healthcare crisis in this country leaving many Americans with significant medical expenses which are, often, unpaid. In addition to those with significantly high medical bills, there is an additional sector of American families with mild to moderate health expenses which, in turn, result in an inability to pay other debts, thereby resulting in a bankruptcy filing due to significant loan and credit card debt. In most studies, this loan and credit card debt is directly the result of medical services which required payment. So, what is the solution?