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Medical Debt Remains a Major Factor in Personal Bankruptcy Filings

Medical debt may be the single biggest factor leading to personal bankruptcy in the country. The Affordable Care Act (ACA), which began to take effect in 2014, makes health insurance coverage much more widely available to people. It does not, however, address many of the health care issues that lead to bankruptcy, such as high premiums, high deductibles, out-of-pocket costs, and external costs like missed work. It seems that wider access to insurance has not led to fewer bankruptcies. At least one report indicates that nearly 80 percent of debtors filing for bankruptcy due to medical bills have health insurance. The bankruptcy system offers solutions for people with overwhelming medical bills, and California law also offers some options short of bankruptcy.surgeon-3-1562055

A 2013 study found that as many as 10 million adults with full health insurance coverage would incur more medical debt that year than they could pay. This is only a small part of the 56 million adults who the study predicted would have some amount of difficulty paying their medical bills. A study of one county in Oregon found that medical debt was a factor in almost three-fourths of new bankruptcy cases in 2014. Over half of the total medical debt in that county was owed to hospitals and hospital systems, where costs can quickly skyrocket, and patients are often surprised to find bills for services that are not included in their insurance provider’s network.

Part of the purpose of a bankruptcy filing is to stop debt collection activities with the automatic stay. California offers some ways for debtors to seek relief from certain types of debt collection, short of filing for bankruptcy. The tools that creditors may use to enforce judgments vary from state to state, and California allows one of the worst ones, at least from a debtor’s point of view:  wage garnishment.

California allows an exemption from wage garnishment “for the support of the judgment debtor or the judgment debtor’s family,” Cal. Civ. Pro. Code § 706.051(b), but prior to 2011, the exemption did not apply to judgments based on medical debt. The law used to say that the exemption was not available if the debt leading to the judgment was “incurred for the common necessaries of life.” Cal. Civ. Pro. Code § 706.051(c)(1) (2010). A California appellate court held that medical care, including hospital bills, is a “common necessary of life.” J.J. MacIntyre Co. v. Duren, 118 Cal.App.Supp.3d 16, 19 (1981). The California Legislature removed the “common necessaries” language from the statute in 2011, specifically citing this court decision.

Once bankruptcy becomes a person’s best option for relief, it is possible to discharge many types of debt. The Bankruptcy Code classifies debts as secured and unsecured, and it further divides unsecured debts into priority and nonpriority. Medical debt usually falls into the unsecured, nonpriority category.

In a Chapter 7 case, unsecured nonpriority debts are likely to be discharged entirely, and no limit applies to the amount of debt that can be discharged in this way. If a debtor does not pass the means test for Chapter 7, Chapter 13 also allows the possibility of discharge at the end of the repayment plan.

Los Angeles bankruptcy attorney Devin Sawdayi has represented individuals and families in Chapter 7 and Chapter 13 cases for almost 20 years. To schedule a free and confidential consultation to see how we may be of assistance to you, contact us today online, at (800) 474-6050, or at (310) 475-9399.

More Blog Posts:

Ninth Circuit Bankruptcy Appellate Panel Considers “Good Faith” Requirement for Discharge of Student Loans, Los Angeles Bankruptcy Lawyer Blawg, April 9, 2014

Bankruptcy Court Grants Discharge of Student Loans, Finding that Debtor’s Mental Illness Constitutes “Undue Hardship”, Los Angeles Bankruptcy Lawyer Blawg, March 24, 2014

Illness or Other Misfortune Often Leads to Bankruptcy, as Shown by a Los Angeles Chapter 13 Case, Los Angeles Bankruptcy Lawyer Blawg, June 25, 2013

Photo credit: Heiland (originaly uploaded on de.wiki by Heiland) [GFDL or CC-BY-SA-3.0], via Wikimedia Commons.