How to avoid Bankruptcy because of  high medical bills

Medical Debt & Bankruptcy 


With Health Reform, mandates, tax penalties  and Subsidies, tax credits – This shouldn’t happen anymore!   Please note that a lot of the information below is Pre-Health Care Reform

See the phamplets below and on the right or scroll down if you need assistance with Medical Debt, Bankruptcy or how loan or debt forgiveness might affect your MAGI income for Covered CA.

10 statistics and findings on medical debt.

1. One in five working-age Americans with insurance encountered problems paying medical bills in the past year, which often led to serious financial challenges and changes in employment and lifestyle, according to a comprehensive Kaiser Family Foundation/New York Times survey. Among the uninsured, 53 percent reported problems paying medical bills.

Here’s an article about a family making $100k who struggle with the $12k Out of Pocket Maximum OOP in CA Healthline 1.14.2019.  Think of what their debt might be if there wasn’t an OOP?

2. Among those facing problems paying medical bills, almost identical shares of the insured (44 percent) and uninsured (45 percent) said the bills had a major impact on their families.

3. Of insured individuals who reported problems paying medical bills, 26 percent received unexpected claim denials; and 32 percent received care from an out-of-network provider their insurance wouldn’t cover.

4. Among those with private insurance, those enrolled in higher deductible plans were more likely to report medical bill problems than those in plans with lower deductibles (26 percent compared to 15 percent).

5. Among the insured and uninsured with medical bill problems, 31 percent said the total amount of the bills they had problems paying reached at least $5,000, including 13 percent who say the total hit at least $10,000. One in four (24 percent) said their bills totaled less than $1,000.

6. Thirty-one percent of insured Americans took money out of retirement, college or other long-term savings accounts to pay medical bills in the past year; 17 percent of uninsured reported the same. An additional 17 percent of insured and 11 percent of uninsured patients took out another type of loan to pay medical bills.

7. Although more than 90 percent of patients reported satisfaction with their primary care physician across several categories in a survey commissioned by the Physicians Foundation, many communicated concern regarding healthcare costs and medical debt.

8. According to the survey, 62 percent of participants reported concern regarding their ability to pay for medical care if they were to fall ill or become injured. More than a quarter — 28 percent — reported skipping a medical test, missing a follow-up appointment or not seeking treatment for a medical problem in the last year due to insecurities regarding the cost of care.

9. Medical debt is sold very cheap because it is difficult to collect on. Craig Antico, co-founder of RIP Medical Debt, a nonprofit based in Rye, N.Y., told STAT a dollar of debt can be bought for less than a cent. “It only takes $14.45 million to abolish $1 billion in debt,” he said.

10. Men and women in the armed forces are nearly twice as likely to file complaints about debt collection than the general population, according to a report from the Consumer Financial Protection Bureau. Of the roughly 19,200 complaints from servicemembers the CFPB received last year, about 8,900 were related to debt collection. In 2015, medical debt concerns comprised 13 percent of servicemember debt collection complaints, with a majority of the medical debt complaints coming from the veteran population.   *


The percentage of U.S. residents who have difficulty paying medical bills declined from about 22% in September 2013, before the Affordable Care Act fully took effect, to about 17% in March 2015

In 2001, 1.458 million American families filed for bankruptcy.  About half of debtors cited medical causes,… Among individuals whose illness led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7% had insurance at the onset of illness. Medical debtors were 42% more likely than other debtors to experience lapses in medical coverage. Even middle class, insured families often fall prey to financial catastrophe when sick.

The average debtor was a 41 year old woman with children, and at least some college education. Most debtors owned homes; their occupational prestige scores place them predominantly in the middle or working classes.

Medical debt was also associated with mortgage problems.

Medical debtors reported particular problems paying mortgages/rent and utilities (Exhibit 4). Although our interviews occurred soon after the bankruptcy filings (7 months, on average) many debtors had already been turned down for jobs (3.1% of debtors), mortgages (5.8%), apartment rentals (4.9%) or car loans (9.3%) because of the bankruptcy on their credit reports.

Illness begot financial problems both directly – due to medical costs – and through lost income. 59.9% of families bankrupted by medical problems indicated that medical bills (i.e. from medical providers) contributed to bankruptcy; 47.6% cited drug costs; 35.3% had curtailed employment due to illness – often (52.8%) to care for someone else. Many families had problems with both medical bills and income loss.

Disability and Supplemental plans

Families bankrupted by medical problems cited varied, and sometimes multiple, diagnoses. Cardiovascular disorders were reported by 26.6%; trauma/orthopedic/back problems by nearly one-third; and cancer, diabetes, pulmonary or mental disorders, and childbirth-related and congenital disorders by about 10% each. 51.7% of the medical problems involved ongoing chronic illnesses.

The co-occurrence of medical and job problems was a common theme. For instance one debtor underwent lung surgery and suffered a heart attack. Both hospitalizations were covered by his employer-paid insurance, but he was unable to return to his physically-demanding job. He found new employment, but was denied coverage due to his pre-existing conditions

(I don’t think this is correct click and view our COBRA page – Also see our Pre-X page and check out the guarantees on Employer Provided coverage.

which required costly ongoing care. Similarly, a school-teacher who suffered a heart attack was unable to return to work for many months, and hence her coverage lapsed. A hospital wrote off her $20,000 debt, but she was nonetheless bankrupted by doctor bills and the cost of medications. even brief lapses in insurance coverage may be ruinous and should not be viewed as benign.

Steve’s Note – This would be a reason to have your premiums paid AUTOMATICALLY from your checking account or credit card  automatic payments even good employment-based coverage sometimes fails to protect families because illness may lead to job loss and the consequent loss of coverage.

Check COBRA, Cal COBRA 36 Months,  HIPAA (pre health Care Reform), Temporary Plans and of course Private Coverage

Lost jobs, of course, also leave families without health coverage when they are at their financially most vulnerable. View entire article PNHP Study Summary page – I don’t agree with them though

Five Mistakes that Will Land You in Medical Debt, written by Elizabeth Cohen, CNN’s Medical News correspondent. Highlights of the story include:

  • A 2007 report stating that 28 percent of the population is paying off medical debt.

  • How medical debt usually happens quickly and is a surprise to many.

  • How agencies can help you negotiate with providers and insurance companies.

Furthermore, Cohen highlights the FHCE’s tools and services eligibility quiz, state-by-state guide of health care choices and 24-hour helpline as resources to those who currently do not have insurance. To take advantage of our online tools and services we provide, please visit our Web site, www.Coverage For It is a rich and educational resource designed for consumers, agents and organizations alike.

Illness often leads to financial catastrophe through loss of income, as well as high medical bills. Hence, disability insurance and paid sick leave are also critical to financial survival of a serious illness.

Posting on another agent’s website about repairing Medical Debt insure me


Consumer Guide - Coping with Medical Debt

Consumer Guide Coping with Medical Debt

  • "Charity?" that buys out Medical Debt with donations from generous people - RIP Medical
  • Senate Bill No. 1276 This bill would instead require a hospital to negotiate with a patient regarding a payment plan, taking into consideration the patient’s family income and essential living expenses. This bill would require the hospital to use a specified formula to create a reasonable payment plan, as defined, if the hospital and the patient cannot agree to a payment plan. This bill would change the definition of a person with high medical costs to include those persons who do receive a discounted rate from the hospital as a result of 3rd-party coverage.  Senate Bill No. 1276
  • CA Hospital Fair Pricing Act prohibits hospitals from charging eligible patients more for care than they could charge Medicare. In most cases, this will be 65-85% less than the non-discounted price. 
  • Equifax - Can Medical Debt affect your Credit Score?

Advocates Guide to Surprise Medical Bills

Advocates guide to surpize medical bills


Cancelled Debt = Income?

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are 10 tips about debt cancellation:

  1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be  able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
  2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of canceled debts to be nontaxable.
  5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.
  6. Form 982. If a taxpayer qualifies, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. They should file the form with their income tax return.
  7. Tool. Taxpayers should use the Interactive Tax Assistant tool – Do I Have Cancellation of Debt Income on My Personal Residence? – on to find out if their canceled mortgage debt is taxable.
  8. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.
  9. IRS Free File.  IRS e-file is fastest, safest and easiest way to file. Taxpayers can use IRS Free File to e-file their tax return for free. If they earned $64,000 or less, they can use brand name tax software. The software does the math and completes the right forms for them. If they earned more than $64,000, they can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It is best for those who are used to doing their own taxes. Free File is available only on
  10. More Information. For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

IRS Tax Tip 2017-23

Publication 4681 Cancelled, #Debts, Foreclosures Repossessions & Abandonments

cancelled debts, foreclosures, repossessions # 4681


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