Medical Problems leading cause of Bankruptcy

While leaders in Washington debate health-care reform, bills for medical care right now are driving more people into bankruptcy.

"It's overwhelming, tragic and overwhelming," said Peter Frank, a lawyer with Legal Services of the Hudson Valley, whose agency is seeing more bankruptcy and foreclosure cases related to health-care costs than ever before.

Frank said his agency handles about 60 to 80 cases of health-care-related bankruptcies a year. A few years ago, that number was only 5 or 10 cases.

The problem is being felt all over the country. A study led by Harvard researchers and published earlier this year by the American Journal of Medicine estimated that nearly two out of every three personal bankruptcies — 62 percent — were due to medical bills.

That study was conducted in 2007, before the current economic crisis, so things actually might be even worse than that at this moment.

And even those with health insurance can be susceptible if they're hit with a very serious illness. Nearly 80 percent of those in the Harvard study who went bankrupt due to health-care costs had health insurance when they first became ill.

The rough economy overall sometimes forces people to choose between health care and other necessaries. Take a working couple with two incomes, who suddenly lose one income when one of them is laid off. If they choose to drop medical coverage to help offset the lost income, they might later regret it if one suffers a major illness.

COBRA allows workers who lose their jobs to remain under their employer's health-care coverage temporarily — usually for 18 months — but they have to pay the full cost of premiums. Frank said many middle-class people these days can't afford those payments.

Those who end up in that situation can file under one of two chapters of the federal bankruptcy code.

Frank said if they own a home, they usually can try to save it by filing under Chapter 13. That allows them to arrange to pay off their debt over time.

If they don't own a home, they'll usually opt for Chapter 7. There the basic goal is to wipe out the debt by liquidating all assets.

Frank said his agency also has to step in at least once or twice a month to stop debt collectors' harassing phone calls to debtors on fixed incomes.