• 31
  • August
    2011

Recent data from Atlanta-based credit counseling agency CredAbility, medical debt is becoming a more frequently occurring factor behind personal bankruptcy filings.

According to the nonprofit, around 20 percent of individuals seeking financial counseling in 2011 and 2010 said medical debt was the biggest reason behind their decision to file for bankruptcy. That number is between 7 and 8 percent higher than it was in 2008 and 2009.

Under federal law, individuals filing for bankruptcy must receive credit counseling to determine whether other options are available. CredAbility analyzed data from over 47,000 clients going through credit counseling in the first half of 2011 and over 100,000 in the three previous years.

Job loss, poor or excess use of credit, divorce or separation, and unexpected expenses are certainly up there as far as reasons for filing bankruptcy, but medical expenses have long been known to be a top reason.

A Harvard study conducted in 2009 indicated that around 62 percent of personal bankruptcy filings in the United States in 2007 were attributed to medical bills. Interestingly, in that study 78 percent of the filers had some form of health insurance. Medical reasons have increasingly contributed to bankruptcy filings over the last couple decades. Back in 1981, 8 percent of families filing for bankruptcy cited medical problems as the reason for filing, but a 2001 study in five states found that 50 percent of filings blamed medical costs.

Persistently high unemployment has caused a number of individuals to lose health coverage. In addition, health care costs are increasing for the employed by means of higher premiums and deductibles. Further, people are paying more out-of-pocket expenses as insurers offer lower monthly premiums in exchange for higher deductibles.

In our next post, we'll continue this discussion.

Source: New York Times, "Medical Debt Cited More Often in Bankruptcies," Ann Carrns, August 18, 2011.