If you're considering bankruptcy because of staggering medical debt, you're not alone. According to a study published in the American Journal of Public Health, an estimated 530,000 families turn to bankruptcy each year because of medical issues and overwhelming bills. Even people who believed they had good health coverage and ample savings have found themselves in financial distress due to unexpectedly large medical bills.
The Pros and Cons for Filing for Bankruptcy
While bankruptcy can provide much-needed relief to individuals overwhelmed by medical debt, it isn't right for everyone. Bankruptcy might cause you to lose valued non-exempt property, including, in some cases, your home, car, jewelry, stocks, furniture, or furnishings. It can also seriously damage your credit score, making it more difficult to secure a loan or qualify for credit cards in the future. Some people may hesitate to file knowing that bankruptcy is a public proceeding; anyone can access your records and get details about your financial situation.
On the other hand, filing for bankruptcy stops lawsuits, wage garnishment, and harassing collection calls in their tracks. Your credit score might have already taken a beating as you struggled to pay the bills and may not be much more damaged by a bankruptcy filing. Moreover, your credit score may recover much more quickly after filing for bankruptcy than if you remain in arrears without filing.
Bankruptcy can also bring peace of mind: If you file a Chapter 7 bankruptcy, your medical debt will be entirely eliminated; if you file Chapter 13 bankruptcy, you will have to repay a percentage of the debt through a realistic repayment plan.
When to Consider Bankruptcy for Medical Debt
If you have good credit, your medical bills are the sole reason you're considering bankruptcy, and the creditors are not yet harassing you, it's probably a good idea to explore non-bankruptcy options to resolve your medical debt before turning to bankruptcy.
You may be able to negotiate down the debt with the hospital or your health-care provider or negotiate a reasonable long-term payment plan with favorable interest rates. If you were not already on Medicaid, in Arizona, pregnant women and children under age 19 might be retrospectively eligible for up to three months prior to filing the application, which could help defray costs. You might also consider borrowing from family or friends to help cover costs.
But if you have exhausted all reasonable non-bankruptcy options to resolve the debt, and creditors are threatening to take legal action against you, you should speak with a qualified Arizona bankruptcy lawyer as soon as possible. A knowledgeable bankruptcy lawyer can help you determine how to best get a clean financial slate, protect your assets, and make a fresh start.