People file for bankruptcy for many reasons. For example, they may have obligations such as past-due federal tax that they are struggling to pay. However, there is no doubt that medical debt is a common cause of bankruptcy, although the exact math remains fuzzy. Here is a review of why a strong relationship exists between bankruptcy and medical debt.
Medical expenses can be sudden and unexpected
From a heart attack to injuries suffered in a car accident, medical injuries and emergencies happen every day. In the winter during a visit to Boston, one bad slip on the ice could be all it takes for someone to begin a spiral into debt.
Insurance plans are too costly
For many consumers, comprehensive and all-encompassing insurance simply remains too costly. They opt instead for insurance plans that purport to help them in the case of emergencies. Sometimes, the plans do step in enough to avert serious debt. Other times, however, consumers do not understand the limitations of these plans and turn out to be responsible for expenses they never dreamed they would have to shoulder. Before you buy an insurance plan, understand its restrictions and what exactly it is designed to cover; never be afraid to ask too many questions.
Medical expenses are costly
In the United States, many medical procedures are expensive. If you do not have insurance coverage for certain procedures, you may actually end up being billed more than someone who has an insurer able to negotiate a discount.
Ripple effects kick in
Suppose you are focused on paying down your medical bills. That can be a good idea, but it might mean you have less money for other expenses-say, your credit card bill. The net effect of that type of medical debt means that even if it is being worked on, other debts are going unpaid. When that other debt takes the form of a credit card, the card may carry hefty interest rates. Paying only the minimum balance or nothing at all may be what leads to the actual financial catastrophe.
Medical debts are charged to credit cards
Speaking of credit cards, quite a few people use them to discharge medical bills. This is a bad move due to the possibility of debt cycles and high interest rates. It is better to try to work out a payment plan for the medical debts.
Proactive planning does help; at the minimum, you should have an emergency fund that covers three to six months of your living expenses. However, many people who plan still end up on the verge of bankruptcy. If you believe that this may be a good option, then talking to an attorney can lead you to better navigate the process.