There is a stigma about filing for bankruptcy that may prevent some people from seeking the relief they need. There is a persistent perception that people bring bankruptcy on themselves by living beyond their means.
This is much less common than many people assume. According to CNBC, excess spending is only a factor in 44.4% of all bankruptcy filings. The most commonly cited reason for a bankruptcy filing, at 66.5%, is medical expenses. Because more than one factor may have contributed to bankruptcy, the percentages add up to more than 100%.
Why do medical expenses result in bankruptcy filings?
Even people who have health insurance may be susceptible to bankruptcy due to medical expenses. The reason is that most insurance policies do not provide sufficient coverage for all of the expenses related to a serious illness or injury. The Affordable Care Act made insurance more accessible to people who were not otherwise able to afford it, but it did not raise coverage limits. Nevertheless, even insurance policies that people receive from their employers do not provide sufficient coverage in most cases. Patients and their families are then responsible for paying the remaining bills out of pocket.
How does Chapter 13 bankruptcy help with medical debt?
Consumers who earn regular wages but have medical expenses or other types of debt that have gotten out of control may qualify for Chapter 13. This reorganizes debts, including medical expenses, according to a multi-year repayment plan so that consumers can pay them off over time.
Chapter 13 is advantageous in that it does not require consumers to liquidate assets.