Avoiding Medical Bankruptcy: What to Do When you Get a Large Medical Bill

Medical bankruptcy: It's a real reality for too many Americans afraid that one emergency could lead to financial ruin. While the Affordable Care Act (ACA) led to major wins in terms of consumer protections when it comes to the quality of health insurance and cost of health care in the U.S., medical costs are still a major risk to most people’s financial security. Due to the nature of the existing health insurance system, one medical emergency could be enough to completely change the course of an individual or family’s financial future. In fact, research published in early 2019 found that 66.5% of all bankruptcies in the U.S. were tied to medical issues. This number reflects those who had to file for bankruptcy both as a result of mounting medical bills and as a repercussion of needed time off of work to get needed treatment. 

In other words, approximately 530,000 American families file for bankruptcy each year as a result of medical bills. 

And researchers believe that this is largely because most Americans do not have the savings to cover a major medical emergency and also still have difficulty accessing affordable health insurance coverage that helps deflect the costs that come with significant and unforeseen medical events. 

How High-Deductible Plans Can Hurt

Even with insurance, many Americans simply aren’t prepared to shoulder the financial load of not only a catastrophic health event, but the mounting bills that basic care can yield when high-deductibles or a lack of insurance yield significant out-of-pocket costs. One in four Americans between the ages of 18-64 report having problems paying medical bills. And of those, 44 percent say that the impact of those bills on their family has been major. 

According to a Kaiser Family Foundation survey, 49 percent of those with private health insurance who report being significantly impacted by medical bills are enrolled in high-deductible plans. In fact, 64% of those in this group say their bills added up to $2,500 or more a year. This, in comparison to 40% of those who saw medical bill totals equal to or greater than that amount of those with lower deductible plans. 

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Financial impact

According to the same survey, 59% of those who say medical bills have impacted their lives also say they used up all or most of their savings to pay their medical bills. Furthermore, 41% of people reported someone in their household taking on an additional job or working more hours to try to earn more money simply so they could pay their medical bills. Another 37% reported borrowing money from family and friends to pay down their medical bills. 34% say they increased their credit card debt. And 26% say they took money out of a retirement, college, or other long-term savings account just to pay their medical bills. 

Impact on health

Once people found themselves significantly impacted by mounting medical bills they struggle to pay, it made it even less likely to continue to seek out medical care. One-third of those who report being impacted by medical bills also say they had problems getting other health care they needed as a result of trying to deal with existing medical bills.

The numbers are even worse for those who are uninsured: 41% of uninsured people report having trouble getting the care they need because of medical bills, compared to 26% of those with insurance. And 62% of people, both insured and uninsured, say that they have difficulty paying for other bills and covering their basic living needs (like food and housing) as a result of trouble paying for medical bills. 

Medical Bills: Impact on Your Credit

But the consequences of medical bills don’t just end there. Mounting medical bills can do more than just create current stress. They can also impact your future by significantly impacting your credit score. 

It’s important to remember that any unpaid medical bill can be turned over to a collection agency. In other words, that debt can be sold to someone else to collect. Then the unpaid bills can be reported by the collection agency.  These bills and their amounts will appear on your credit report. (They can’t report the name of the doctor or reason for the treatment though.) And even just one bill going into collection can cause your credit score to drop anywhere between 50 and 100 points. 

And once on your credit report, these delinquent bills don’t go away anytime soon. An unpaid medical bill can stay on your credit report for up to seven years from the time of the original delinquency date. 

Some credit report agencies may not report medical collections until they are 180 days past due, allowing for a grace period for consumers to pay down any bills, create a payment plan, or resolve any disputes related to medical billing. And some credit score tabulations will not include any medical debt once a medical bill is paid. But again, this all varies by agency and formulas used. 

Medical Bankruptcy and Medical Bills

If you need to file bankruptcy as a result of your medical bills, keep in mind that there is no such thing as “medical bankruptcy” specifically. Because of the nature of bankruptcy laws , any debt you have will be considered equally. So, when you file for bankruptcy, you must list all of your debts and assets. This includes everything from personal loans to credit cards to medical bills to personal property and real estate. It also includes your income and that of your spouse. Keep in mind that you must list your spouse's income, even if they are not filing bankruptcy as well. 

There are two types of bankruptcy filings: Chapter 7 and Chapter 13. 

Chapter 7 bankruptcy

With Chapter 7 bankruptcy, you ultimately receive a discharge of all of your debts. (Though some debts are not dischargeable, like past due child support and income taxes.) If you have any secured debts, like a car loan or home mortgage, don't worry. You can continue to make payments after your bankruptcy case is over if you wish to keep that property. If you income level qualifies you for Chapter 7 bankruptcy, you’ll get forgiveness from all your debt otherwise. 

Chapter 13 bankruptcy

A Chapter 13 bankruptcy filing is effectively a debt repayment plan. The bankruptcy court will determine the amount of your payments and the schedule for making them. They do this by evaluating your total existing debts and current disposable income. From this, they will then calculate the amount of your payments and their sum total. Through this system, you may end up paying much less than the total amount of your debt. And you can still receive a discharge of your remaining debt at the end of your payment plan cycle. You will then make those payments directly through the court.

No matter what type of bankruptcy you file, keep in mind that filing bankruptcy might impact your health care access. Legally, a physician can refuse to treat you if debt owed to them has been discharged into bankruptcy. Of course, not all doctors will do this. Most will be understanding of the dynamics that lead to bankruptcy and medical bills’ role in it. However refusing to treat you after medical debt is fully within their rights.

How to Pay Off Large Medical Bills

Facing a stack of large medical bills that you can’t begin to figure out how to pay? You certainly have options. And those options aren’t just filing bankruptcy!

Here are a few ways you might begin to start paying down your medical debt:

Apply for Medicaid

Depending on your income level, you might qualify for Medicaid in your state. And if you’re facing a load of big medical bills, that might help with your Medicaid eligibility. Medicaid may not necessarily help in alleviating the debt associated with outstanding bills. But they might be able to help with very recent bills if you’re eligible. Having Medicaid might also significantly reduce your day-to-day expenses and will provide a great safety net against future medical-related costs. Likewise, you might want to see if any of your dependents qualify for CHIP, the Children’s Health Insurance Program. 

Get on a payment plan

First, talk to your provider. They might be willing to work with you to set-up a payment plan for your bills. Some providers charge interest while others don’t. Either way, a payment plan might help you forge a way to paying down big bills. It will also keep those bills from going into collections. In many cases, it’s a win-win for patients and providers alike. 

Negotiate your bill

For many providers, negotiating a reduced amount (either paid in installations or a lump sum) might be preferable to the time and effort expended tracking down the original full amount of a bill. Have an especially steep bill that you’re unable to afford as is? Ask your provider’s office if you might be able to reach a negotiated new total amount. It might take a little back and forth. But it might also translate into significant savings for you. Even better, it will eliminate the need for a collection agency to ever get involved.

Overwhelmed by the thought of doing these negotiations yourself? You might want to hire a professional. Patient advocates are people with years of experience dealing with health insurance companies and providers and, for a fee, can work with any providers to review your bill for any errors that might result in savings, negotiate for discounts, and strategize on how best to de-bundle your bill to translate into a more manageable amount for you. A good patient advocate might be able to negotiate a 17-49% reduction on what you owe. This kind of savings means that their contingency fee or flat fee more than pays for itself. 

Borrow from people you know

Don't be afraid to ask friends and family for help if your medical bills are more than you can handle. There is no shame in needing help, especially when in a crisis. So many people would be happy to help in this situation in any way they can. Depending on what your comfortable with, you might want to talk to a few close friends or family members directly. If you ask, they might be able to lend any money to help pay down your bills.

Or, you might set up a GoFundMe or other crowdsource-based fundraising site. If this feels overwhelming to do on your own, ask a trusted friend of family member for help. These sites can help you raise the money to help off-set your medical expenses. With a web-based platform, people can easily share the link to others you may not even know, who might want to help you in your circumstances. 

Get a personal loan

Companies like Lendup offer online personal loans, which often function as a safer alternative to payday loans, and they are often cheaper, as this analysis of several online loan providers shows. These are personal loans, many specifically for helping pay down medical debt. While these kinds of loans may be one of the more expensive ways of reducing medical debt, they can offer a solution and stop further harm being done to your credit as a result of mounting unpaid bills. Various lenders differ in terms of interest and fees, so we recommend that you get quotes from each lender you’re considering for your loan amount and location and compare fees among lenders.

Medical credit cards

Another option, often available directly through your health care provider, is a medical credit card. A medical credit card often offers a desirable situation for both patients and providers. A credit card just for expenses at a given provider lets the patient pay each month towards the balance off that specific bill if they can’t pay the bill and full. And since the provider isn’t the issuer of the credit card, they are free of the worry of having to deal with collections of a patient can’t pay.  

Be sure to familiarize yourself with the terms of a medical credit card, though, as while many claim to be no-interest, they are often only interest-free for a certain amount of time. And that period of time might be shorter than the amount it takes to make payments to pay off the total amount of your credit card bill that carries the balance of your medical bill. So, a medical credit card could leave with you extraordinarily high interest to pay on top of an already high-cost medical bill. Alternately, instead of a specifically designated medical credit card, you might be better off with a truly 0% interest credit card that offers 0% interest during the entirety of a set introductory period and offers a lower interest rate once that period ends.