This debt could force you into bankruptcy, and it’s not student loans

Personal Finance


Americans collectively hold a record $1.6 trillion in student loan debt. But that’s not the No. 1 reason that prompts them to file for bankruptcy.

Here’s what most often does drive them to the financial brink: big medical bills.

Hiroshi Watanabe | Getty Images

A recent academic study found that 66.5% of all bankruptcies were tied to medical issues — either because of high costs for care or time out of work. An estimated 530,000 families turn to bankruptcy each year because of medical issues and bills, the research published in the American Journal of Public Health found.

Other reasons include unaffordable mortgages or foreclosure, at 45%; followed by spending or living beyond one’s means, 44.4%; providing help to friends or relatives, 28.4%; student loans, 25.4%; or divorce or separation, 24.4%.

Student loans cannot be discharged in bankruptcy. But 2020 Democratic presidential candidates, including Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), are proposing legislation for broad student loan forgiveness.

Separately, President Donald Trump on Monday issued an executive order that would require more health-care providers, doctors and insurers to be more transparent about health-care costs. That would include letting patients know what their out-of-pocket costs will be before they have procedures.

Limited protection

The data from the study also investigates one key factor: whether the Affordable Care Act has reduced the high medical debt burdens people face.

“Despite gains in coverage and access to care from the ACA, our findings suggest that it did not change the proportion of bankruptcies with medical causes,” the article on the research states.

The number of debtors who cited medical issues as a contributing reason for their bankruptcy actually increased slightly after the law’s implementation — 67.5% in the three years following the law’s adoption versus 65.5% prior.

The culprit for the lack of improvement was inadequate health-care insurance, according to a co-author of the research, Dr. David U. Himmelstein, a distinguished professor at Hunter College and founder of advocacy group Physicians for a National Health Program.

“Unless you’re Jeff Bezos, people don’t have very good alternatives, because the insurance that is available and affordable to people, or that most people’s employers provide them, is not adequate protection if you’re sick,” Himmelstein said.

More from Personal Finance:
Bernie Sanders proposes forgiving student debt for 45 million
How to avoid paying more for your health care than you should
You can save a lot of money on health insurance, but should you?

To help combat this problem, Physicians for a National Health Program is advocating for a national Medicare for all program that would broaden insurance coverage for Americans.

“Health insurance is only very partial protection,” Himmelstein said. “I liken it to a hospital gown that looks like coverage until you actually inspect it.”

The research included 910 Americans who filed for bankruptcy between 2013 and 2016.



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