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Medical Debt Causes Two-Thirds of All Consumer Bankruptcies, New Study Shows

June 17, 2009

As San Bernardino County bankruptcy attorneys, we were already all too aware that medical debt is a leading cause of consumer bankruptcy in America. That statistic comes from a 2001 study, released in 2005, which found that about half of consumer bankruptcies in five states were caused by medical bills, even among insured people. Now, the authors of that study have updated and expanded it, National Public Radio reported June 10, and found that medical bills are now responsible for 62% to 69% -- about two-thirds -- of all bankruptcies. And nearly 80% of those who did go bankrupt because of medical bills had insurance.

The study, published in the American Journal of Medicine, was authored by researchers at Harvard Medical School, Harvard Law School and Ohio University's Department of Sociology. They surveyed a random group of 2,314 people who filed for bankruptcy in 2007. The result: Bankruptcies attributed to medical causes rose by an alarming 49.6% between 2001 and 2007. Most of the people they studied had medical insurance and were well-educated homeowners with middle-class incomes. In the vast majority of cases, medical bills were more than 10% of pre-tax income; in others, debtors mortgaged their homes to pay medical bills or lost income (and health insurance) because of their illnesses. The authors contrasted this with a 1981 study showing that only 8% of families filed for bankruptcy in that era after a serious medical problem.

The authors' sad conclusion was that medical bills are responsible for a large proportion, even a majority, of consumer bankruptcies -- and that proportion is growing. We're sorry to say that we've experienced this firsthand in our practice as San Diego County bankruptcy lawyers. As the authors of this study note, many people use credit cards to pay their medical bills, which can send them deeper into debt when credit card companies jack up interest rates or lower their credit limits. The situation is also complicated by emotional issues, as co-author Deborah Thorne noted in the NPR interview. Because people feel ashamed or overwhelmed by their debt, some of them delay bankruptcy, increasing their financial problems. As Ventura bankruptcy lawyers, we find this horribly ironic, because if there's one debt no one would voluntarily choose, it's debt from a serious medical condition.

Howard Law LLP represents clients throughout California who are ready to get control of their financial lives through bankruptcy. We represent consumers in both of the most common types of bankruptcy -- a Chapter 7 liquidation and a Chapter 13 reorganization, which allows debtors to hold on to their homes and other large assets. Our Alhambra bankruptcy attorneys can help you decide which is best for your circumstances, stop harassing phone calls from creditors and guide you through the complex process of declaring bankruptcy. If it's appropriate for you, we can also help you resolve your debts without a bankruptcy, through debt settlement services or a mortgage loan modification.

If you're overwhelmed by debt you don't believe you can pay and you know you need help, call Howard Law as soon as possible for a free, confidential consultation. You can reach us toll-free at 1-800-872-5925 or contact us via email.