Why does medical debt often lead to bankruptcy?

Medical debt is well-known as one of the top reasons that Americans file for bankruptcy. Even in cases where it is not the sole issue – i.e. when someone also has credit card debt or other lines of credit – medical debt is often listed as one of the reasons for a filing.

But why is this? What is it about medical costs in particular that makes them so problematic?

6 connected reasons

Medical debt can lead to bankruptcy due to several interconnected reasons:

1. High Costs of Healthcare: Medical treatments, especially for severe illnesses, chronic conditions or emergencies, can be extremely expensive. Even with health insurance, individuals might face high deductibles, copayments and uncovered medical expenses, leading to substantial debt.
2. Lack of Sufficient Health Insurance Coverage: Inadequate health insurance coverage or being uninsured can result in individuals having to pay for medical treatments entirely out-of-pocket. This burden can quickly accumulate, particularly for long-term or costly medical procedures.
3. Unexpected Medical Emergencies: Unexpected medical emergencies can arise suddenly, leaving individuals and families with hefty medical bills that they may not have budgeted for or anticipated.
4. Loss of Income: Serious health issues can often lead to individuals being unable to work or losing their jobs, resulting in a significant reduction or complete loss of income. This loss of income can make it difficult or even impossible to cover daily living costs and medical expenses. Loss of income is also listed as a top reason for bankruptcy.
5. Debt Collection Practices: Unpaid medical bills might be sent to collection agencies, leading to harassment, lawsuits and additional stress for individuals already facing medical debt. This can further exacerbate the financial strain and contribute to the decision to file for bankruptcy.

Bankruptcy might become a consideration for individuals overwhelmed by medical debt because it can provide relief from unmanageable financial obligations. Chapter 7 and Chapter 13 bankruptcy are two common types that can offer a fresh start for low-income earners (Chapter 7) and those who can manage an extended repayment plan (Chapter 13).

Bankruptcy can be a complex legal process. Individuals who are interested need to carefully consider the various options they have and whether some may be useful in their specific case. If you’re in this position, please call our office to learn how we can help you.