Bankruptcy

Obama Sees Bankruptcy Drop in Health Reform Victory

By Chris Kramer

This weekend, the U.S. House of Representatives passed a healthcare bill that could lead to substantial changes in the nation?s healthcare system. In an email to supporters sent Sunday evening (via Organizing for America), President Obama noted that the new regulations could prevent "families and businesses from plunging into bankruptcy."

So how is healthcare reform linked to personal bankruptcy filings?

The Tipping Point

Many Americans who file for bankruptcy don?t decide to do so over night; for many, it?s a drawn out and even painful process. Often, people wait until they have no choice but to file for bankruptcy, meaning that their savings and retirement funds are depleted and they have few other options.

Consider this:

• In 2001, a study found that medical costs contributed to 42.6 percent of all bankruptcy filings in the U.S.
• In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and tightened the requirements for those wishing to file for bankruptcy.
• In 2007, a new study showed the number of "medical bankruptcies" rose to a startling 62.1 percent.

Understanding "Medical Bankruptcy"

High medical bills alone may not force otherwise financially healthy individuals to file for bankruptcy. But, as the 2007 study points out, medical problems and expenses can harm individuals and families in a number of ways:

• Income loss: Injuries and illnesses that cause people to take significant time off work often mean significant pay loss as well, which can lead to unpaid bills of all stripes.
• High bills: The 2007 study indicates that, of those who were pushed into bankruptcy for medical reasons, a whopping 92 percent had bills that totaled more than $5,000 or 10 percent of their family?s pretax income.
• Loss of safety net: Even those who have enough money to cover medical bills are at risk: expensive procedures that drain savings accounts can set you up for financial disaster if any other financial roadblocks spring up.
• Limited future: Some injuries and illnesses leave permanent damage and can affect a person?s ability to find and keep work in the future, meaning that options for getting out of debt can be severely limited.

As the Obama Administration has pointed out, the introduction of more comprehensive healthcare coverage could eliminate or correct many of the problems currently linking medical expenses to bankruptcy filing.

To better understand how the healthcare reform might affect you and your family, check out this post.

Additional Resources

America?s Affordable Health Choices Act

Full post as published by The Bankruptcy Blog on March 25, 2010 (boomark / email).